I have now been working on my startup full-time for over two months and want to share a few things I have learned that may be useful to people considering making the leap to start a company. The tech startup world is a whole new world and it required me to learn a very different way of thinking than when working in a large (or rather largest in the world, while I was there) software company. When I decided I was going to make the leap, all I had was an idea that made it to the top of my list of 100+ ideas, and I had done a lot of research in the GreenTech industry and run ideas by many folks in the GreenTech industry. That was enough for me because there’s no better way to learn than jumping into things, and it wasn’t something I could make much progress working part-time.
I began to go to a lot of startup events, read about successful and failed startups, talk to established tech entrepreneurs, angel investors, and venture capitalists. My favourite book is “Founders at work” because it has a diverse set of startup success stories. My favourite blog is Mark Suster‘s “Both Sides Of the Table” because I think Mark brings in great insights being both an entrepreneur and a venture capitalist. I also find Mark’s blog especially useful because he explains his advice and thoughts in depth based on his experiences, which is good because it helps you understand the context of the advice and whether it applies to you or not. There are several other really famous people with popular blogs in the startup world but I’ve always felt there’s a degree of self-promotion in their posts, whereas Mark’s posts feel more genuine to me.
One of the things I hadn’t thought of initially that led me to go back to the drawing board a while back is that I never spent time thinking about what kind of startup I wanted to build. I think it’s important because I think it also limits the kinds of ideas you can work on. Buiding a startup and getting funded is very complex and the entire process has many variations. However, I’m going to simplify the analysis here and look at three scenarios and types of startups:
1) Startups with no funding
2) Startups with growth funding to scale revenues
3) Startups with early stage funding
A couple notes:
- There are many funding options, it can be angel funding, incubator funding, VC funding. We’re going to consider them all the same for simplicity of this analysis
- There are many exit strategies too, such as IPO’s and acquisitions. VC funded startups go to IPO, for the rest we’ll assume exit is acquisition
No Funding
In self-funded or bootstrapped startups, typically founders take the startup to revenue, grow it organically to a sustainable business and eventually exit without any outside money.
Growth Funding
In this scenario, founders typically are able to get the company to revenue, but use funding to scale the revenue model and/or take a niche idea mainstream
Early Stage Funding
Founders figure their product market fit, or at least have done some validation. It’s hard to get investor money without at least a prototype, initial users, and some market validation. Then, heavy VC investments come in to build a team that can deliver on vision, typically tens of engineers.
Thinking about what kind of startup I want to build caused me to pivot a lot with my ideas but I think eventually it enabled me to make better decisions of where I want to be. Early exits are more capital efficient than VC funded startups, and exits happen much sooner than VC funded startups (3-4 years vs. 12+ years on average). However, VC funded startups are the ones that have the big, famous exits like Mint.com, which I think most entrepreneurs dream of. Also, it’s a lifestyle choice. In VC funded startups, founders lose freedom and control but on the other hand, through the VC’s resources, founders can build a very strong network, accomplish a lot more, hire young rock stars, and work on really big ideas. There are advantages and disadvantages to each approach so do give this some thought when founding a tech startup!
Resources:
http://www.startupcfo.ca/?p=329
http://www.early-exits.com/Early_Exits_Reviews.html
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