Customer Money vs. VC Money

  • For any startup business, there are three major sources of money. There’s the money you raise from personal funds, friends, family and loans, followed by investment from venture capitalists (VCs), and finally the money you make from happy customers who buy your product or service. While the large lump sums can be tempting, it’s very important for young businesses to put every ounce of energy into creating a rewarding customer experience and increasing your annual profits from customer money. A business exists in order to perform that vital and profitable interaction with customers. They strive to become efficient to provide valuable services at a lower overhead. This, in turn, gains them more satisfied paying customers, whose payments fund the next round of overhead and growth.

What is Venture Capital?

The venture capital method has two sides: the investors and the companies. On one side investors are normal people who pool their money, then invest in batches of startup companies in hopes to make back more money than they put in. That’s the simple part. On the other side, businesses who accept venture capital are making a deal with the devil. You see, the way the VC system makes money for the investors isn’t based on your profits or happy customers, but how much you sell for. Venture capital is a lot like a backward mortgage: when you ‘succeed’ at paying your investors, you lose control of your company by either selling a large number of public shares or being bought out by a larger company and the VC investors take most of the money.  

Using VC Money

For many businesses, this doesn’t sound so bad, especially if the founders enjoy the challenges of starting business after business. Each one funded by VC money, sold for a tidy profit and another, often nearly identical business is started using the ‘success’ of the first one to persuade more VC investors to buy into paying the startup costs. This method is fine, but only if you see your company as a disposable means to an end. For young companies, the offer of large VC startup funds can be tempting, but this is not free money! Your investors still want their money back and then some, and unlike a bank loan, there are strings attached to how that money is repaid. While they may want you to succeed, they will then want a big slice of that success when you sell.  

The Value of Customer Money

Customers are the reason businesses exist, they are the demand for your supply and without them there would be no point in founding a company. Many startups skip the snazzy offices and ergonomic chairs for the first few months in order to start providing to customers as quickly as possible. When those first few checks come in from happy customers, that is when business truly begins. From there, it’s a matter of balancing overhead with income, generating profit, and expanding. Customer money comes with no strings attached, and each successful sale increases your company’s value and respect in the industry. As your customer base grows, so too does your business.  

Dealing with Investors

It’s nearly impossible to start a business without investors. Just like most people would rather buy their homes in cash instead of taking out a mortgage, most companies would rather already have the startup capital needed to provide services right away, but this isn’t how it usually works. If your company is like most, and you have investors to make happy, customer money is the number one way to achieve your investor goals and gain leverage in dealing with them at the same time. When they see you making money with happy customers, they see the value of your stock rising and their payout increasing when you finally sell. This, in turn, gives you the power to negotiate and insist on doing things your way, the way that is making more money for the company and investors alike.

There is nothing more important to your business than customer money. W3 Business Minds has dedicated years of experience to helping small businesses build their sales results with a custom-tailored combination of solid financial and marketing strategy, web development, and IT service you can count on. Whether you’re dealing with pushy investors or just want to increase your customers money, contact us today.


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