In a world full of answers you start your journey by asking the right questions
The question I am going to discuss today is who you should be trying to sell the future to? or put another way, are VC’s really an essential part of the innovation equation?
In my experience innovation requires 3 key drivers for it to succeed. Ideas, Intelligence and Investment.
Assuming you already have the first two let’s focus our attention on investment.
Investment comes in many forms. Yes there is finance, but before finance there is effort or, better still, time and energy. Finance is after all only the fuel that funds time and energy (plus materials and resources).
As an entrepreneur you have limited finances and limited time and energy. Most of that time and energy is spent selling the future. The question you need to ask yourself is where is my time most productive. I could be selling the future to a venture capitalist (VC) or I could be selling the future to my potential customers.
If you choose the VC then understand you will be putting in weeks, if not months of energy, preparing your Business Plan (i.e. the “Movie Script” or “Best Selling Novel”) and trying to get face time with a VC. The net result of all your effort – if you succeed – is you end up buying.
Yep that right. You end up buying because the VC will be selling you money at a very expensive rate in return.
The problem is, now you have bought their money, you still have to go out and find the customer. So after expending all that effort and energy finding and wooing the VC you are now 3-6 months behind schedule.
Funny thing is if you had expended all that energy chasing the VC on chasing new customers then chances are you would have ended up selling something. And if you sell something you end up making money.
After all, are you in business to make money or to buy money?
So my message today is very simple. You can expend all that energy trying to buy money from the VC or you can expend it trying to sell something to your customers. I know what I would be doing.
Why? Because once you have paying customers on board arranging the finance for expansion becomes a lot easier and less expensive. Who knows the VC might even buy you lunch?
More notes on Thinking like a VC.
[Update 18-1-2010] Articles of Further Interest
The Customer is your best vc. – Union Capital’s Venture Capital: When You Need It, When You Don’t
You would think that cheap, abundant capital was a great boon for entrepreneurs. It isn’t….Lots of cheap capital, available at high valuations seems great, until you do the exit math. – Traditional Venture Capital Sure Seems Broken – It’s About Time
Back in the day, a formula was widely used to figure out how to make millions as an entrepreneur. It went something like this… The problem with this formula is most of the time, it doesn’t work well for entrepreneurs. - Starting a Company in the Ad Ecosystem