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 […]

  • 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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Startups Business – Determining if Your Business is Ready for Funding

Having the ability to raise capital is a key engine of growth in a startup business. However, before pursuing funding from venture capitalists (VC), other investors or through crowdfunding, a startup business must satisfy several requirements in order to not only increase its chances of obtaining the necessary funding but also to maximize the funding’s […]

  • Having the ability to raise capital is a key engine of growth in a startup business. However, before pursuing funding from venture capitalists (VC), other investors or through crowdfunding, a startup business must satisfy several requirements in order to not only increase its chances of obtaining the necessary funding but also to maximize the funding’s impact on the business. The four most critical requirements that capital markets will inspect very closely are:

  • 1. A complete business plan
  • 2. Detailed market research
  • 3. Realistic one and multi-year plans
  • 4. The expected payoff for the investors
One important additional consideration that a startup needs to consider is if the business has decent growth prospects without addition VC funding. One of the primary drivers of failure in startups is rushing to scale too quickly and drowning debt due to heavy, fixed operation costs.

1. A Complete Business Plan


Without a detailed and realistic business plan, a startup will find themselves coming back empty-handed after meeting with investors. The business plan is the foundation upon which the startup will be built presenting an overall summary of the startup business and the method(s) by which it will make money and achieve profitability. A good business plan will provide documentation for projected business costs, sales, revenue, profit margins and potential areas of growth either organically or through acquisitions. A business plan should give a realistic data on when the startup is expected to achieve profitability.

2. Detailed market research

There are many excellent ideas that sound great in theory but do not result in a profitable business opportunity due to a lack of viability in today’s marketplace. Conversely, ideas that sounded almost nonsensical at the time (e.g. the pet rock) were wildly successful in the marketplace. Solid research provides the grounding for the numerical projections when making a capital request.

3. Realistic one and multi-year plans

Even if a startup projects great growth during its first year, investors are going to want to see plans and projected growth over multiple years. The ‘holy grail’ that investors look for in a business is a potential to go public at some future point. Therefore, they will focus on the staying power of a business much more that a chance to turn a “quick buck”.

4. The expected payoff for the investors

Investors are apt to not provide funding for any business that does not offer a specific payout for them at some specific point in the future. This payout can take many forms, especially for crowdfunding ventures, but the promise must be explicitly mentioned.

If your startup meets all of this criteria and you are ready to pursue funding, contact us and let us help you grow your startup.

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Five steps to attract investors

Attracting investors for any business is difficult, and it’s especially difficult for a startup business, but if you’re ready to go after investment, follow these 5 steps to ensure success: 1. Know your product It is essential to have a strong, professional business plan. Just believing in your ideas isn’t enough, you need to back up your ideas with research and […]

Attracting investors for any business is difficult, and it’s especially difficult for a startup business, but if you’re ready to go after investment, follow these 5 steps to ensure success:

  • 1. Know your product
    It is essential to have a strong, professional business plan. Just believing in your ideas isn’t enough, you need to back up your ideas with research and testing. If your business includes a product, have a working proto-type that you can present to interested investors. Show them that you’ve done your homework and know that your business is ready to go.

  • 2. Know your market
    Know your market before your presentation by doing thorough research. Have the proof on paper to show potential investors that your product is in demand and you know who the consumers are and how to approach them. If there is competition, show how you are different or better. Know the growth potential for your business. Have a marketing strategy ready to reassure your prospective investors that you know your marketplace and have a clear picture of the future.

  • 3. Know your investors
    In the same way you look for your product’s target market, look for your investors. Check out crowdfunding sites for access to different types of investors. Study the sites carefully to find the best fit for your startup business. This will help you concentrate your search, give you ideas for what they’re looking for, and help you save time and energy.

  • 4. Know your pitch
    Know your facts, rehearse your pitch so you know it well but don’t be robotic, anticipate investors’ questions and have answers ready. Know your numbers so you don’t make a bad decision on the spot. Be calm and be yourself but be professional. Most importantly, don’t be over-aggressive or defensive.

  • 5. Let your investors know you
    Tell them your personal story and show them your passion and enthusiasm. Show them you are reliable and know how to use funds appropriately. It is very important that investors know you won’t take their money and use it foolishly, and you need to prove it to them before they commit.
Today’s business world is fast-paced and constantly changing so if you are looking for ways to attract investors to your startup business, you’ll be a step ahead if you prepare yourself well in advance.

If you’d like more information on this topic, or others, contact us and we’ll do our best to help.

Let’s do some realty Checks? :
Do you think your startup business is ready to receive investors Fund ?
Do you Really need investors Money, Read this Articles to know other source of investments

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