Contributed by Bill Liao, the co-founder of XING.com, a business social networking site.
I was the CEO of a company that had just closed a €7 million deal, and then six months later we were bankrupt because of my choices dealing with funding. Here are nine things to consider before resorting to funding:
9. Look at how the money is going to affect your team. When my company received money, my team was not as crisp and tight as they used to be. They all began to want pay raises and our projects started wasting more money. I learned that money can make productive, well-intentioned people sloppier, greedier and less focused on getting to market.
8. Investment cash is only a distraction for you and your team. Investment cash does not allow your company to become better at what it does.
7. A false sense of achievement is a hazard of raising capital. You and your team just worked your butts off to get more cash for the business, but without creating any value for yourself or your team. What’s more, how you did it did not teach anything of real importance regarding how to make the business run better.
6. A real sense of failure is what comes when you go out, bang on door after door looking for cash and it does not come. If entrepreneurs had put the effort into building a team of people who are working for equity and focused on the product, they would have been far better off.
5. Incentives do not work. It quells creativity and innovation. Incentives force your company to be a certain way, to not focus on your team building or your intellectual property.
4. Innovation comes from desperation. From my experience, when times are tough people always figure out ways to do more with less.
3. Once companies receive funding, they start becoming “Bozoville,” hiring only “experienced” people, but the “experienced” person is not always the best decision. Employees who are in hungry, innovative companies figure out great ways to get things done on a shoe-string budget; however, with the “bozos,” everything that made your company unique gets diluted by the ideas of people who are only there for the money.
2. Money can make you stupid. I know from personal experience that when I focus on money, I often make the worst decisions. When I focus on value, my teams and having fun with what I am doing, I make much better choices.
1. It is not your money. It may feel like you can use that cash investment for whatever you want, but money always comes with strings attached. Just this small freedom should make you think twice before putting your hand in the funding cookie jar.
None of these reasons say you should never go for funding, but I hope they make you think hard about whether you really need to.