I don't speak much about raising capital at Startup Next Door. For goodness' sake, the tagline is "Venture without Capital". But Wednesday night I spoke with a gentleman who had been involved in a few startups (most of them huge), and who has raised funds and is currently raising funds for another ambitious startup. In speaking with him about a business idea and how to raise funds, his advice was to create a story about what you are trying to accomplish, and a part of that story MUST involve making money. That old chestnut - the business model.
Today's angels and VCs are holding on to their money. It's not good enough that your startup gets tons of traffic. Traffic does not equal money. If you don't have a product or service that people are willing to pay for (either sponsors or users), then you don't have a service worth building. It might be a service that makes you happy to offer, but you won't get funding.
So why am I talking about creating a story to get funding? It's a good test to discover that what you're doing is worth your time. If you can't honestly come up with one solid idea that will create long-term revenue, then why are you working so hard? You need to sit down in a quiet place and figure out that one sure-fire revenue method. And a revenue estimate that should make it worth your time. Otherwise, why are you taking time away from your spouse, children, and other family members?
You need to start making money on day one. If you start making money within the first day or week that you launch, isn't that better than working for months and then making nothing?
Forget ads. Ads will not make you rich. Ads are not worth the time. Some sites like TechCrunch make a lot of money from ads, but they also have many servers, office space, IT staff, article contributors, and other people they have to pay. If your revenue model is "get traffic, then run ads", you need to come up with something better.
Be the VC
Take off the rose-colored glasses (honestly does anyone in the 21st century wear these?) and pitch the business idea to yourself. Or even better, your spouse. If they aren't excited about it, then they don't buy it. And neither should you. So figure out a better way to make money with your startup, or dump it. Life is too short.
You may be thinking, "what about Twitter?" Sure they just rolled out a business model and have $150 million in funding so far. But the investors are expecting a return on that investment. Probably a 4-6x return. And no one can cash out shares until that $150 million is paid back to the investors. Twitter, Facebook and many other "successful" startups like this are statistical outliers.
Playing the lottery is not a business model.
Next post: serving your business email, part 1