Venture Capital. Don’t bet on it.

One of the great questions that you will face as a first time startup is how to finance your operations. Choices are Self Funding, Friends, Family, Banks, Highway Robberies and then the Venture Capitalists in that order.

Don’t count on VC money to come to you in the beginning unless you have a track record (of previously raising and spending it). I read an interesting Business Week Online article (The Art of Doing it Yourself). Talks about how small businesses shouldn’t count on VC money and how VC money comes when you least need it.

I sat through an INSEAD presentation last week that stated that over 90% of startups are funded by the founder. This was followed by Family and Friends.

So when we started the business we were told, “Build a good team, Build Customers. Funding will follow. Trust us”. So we did just that. Stated with a motley crew of 8 people and built it way up to 100. Went out an got some customers as well . Oh yeah and revenue (Monthly Recurring Revenue). It took us 2 years to do this. Along the way we even finalized bank financing (we were later told that this was quite an achievement).

We then looked to a VC for funding and were told that we were asking for very little. So much for that.

The USA is the ONLY country where there is an ecosystem of VCs for startups. Most of the VC funds there are run by people who have been entrepreneurs in their past lives. In countries like India most VC funds are run by people who have a finance or a banking background and are very very very risk averse.

The best bet for someone starting out is some amount of self funding and a customer who is willing to bet on you by giving you business. I know it’s easier said than done but its possible and easier to do this that raising money from a VC.