Why I turned Down Investor Money for VoiceBunny & Voice123
“Who are your investors?” “How much have you raised?” I’m asked these questions constantly about my businesses, Voice123 and VoiceBunny from other entrepreneurs, media, and most tech people I’ve met. The answers are: no one and $0. Eyebrows, and perhaps red flags, rise. I have actually pitched to VCs and had a few offers. But for now, we’ve decided not to raise capital. Yes, there is a sense of pride that comes with being an immigrant entrepreneur and being able to say I’ve come this far on my own (with the support of an amazing team, of course), but it’s not just pride or the mythical “American Dream” that keeps me bootstrapping. I’ve got five solid reasons why bootstrapping is not only possible, but is a logical decision.
We are cash positive. My wife and I founded the first online voice over casting website, Voice123.com in 2003. Thanks to a combination of great timing, good luck, and our skills and willingness to do whatever it took to make our dreams of owning a business come true, the site was actually making a profit in only six months. For now, our steady stream of income allows us to execute our plans without sacrificing speed or quality of our products. I understand that many don’t have this luxury. For example, if you or your co-founders can’t code, hiring developers is going to eat a significant amount of your money (even if you’re not a tech startup, you’re going to need web development).
It’s not impossible. Companies like Valve and GitHub were able to succeed by bootstrapping. If you are in a very competitive space, you may think you need VC in order to beat others to the punch, and that may very well be the case, but remember, lots of money doesn’t always mean faster product development. Money can actually have the opposite effect, affording a feeling of safety that numbs the sense of urgency that comes with having your livelihood on the line each day. With Voice123, we knew we were first in the space and that time was probably on our side, but we never relaxed. Without VC, we were able to build Voice123 into a profitable business that has lasted 10 years and build our new product, VoiceBunny.com (which is already bringing in revenue) with our own money.
VCs provide good advice, but… a well-built board of advisors can provide better advice. Many startups use VCs as way to get expert advice and connections to major players in their target industries. With VoiceBunny, I chose to build an amazing, experienced, well-connected board of advisors. I started by finding my personal and my company’s weak spots and sought advisors who were experts in areas where we lacked experience or skill. For example, we didn’t have anyone on the current VoiceBunny team with a strong sales background. So when I met Dan Gertsacov, former Head of New Markets and Head of Sales at Google Latin America, I jumped on the chance to bring him on board. I made it clear up front why I needed his help specifically and he was very excited to help out. With a board of advisors, I get their wisdom and connections without losing any control or too much equity in my company. Plus, I get to name drop a little, giving my new company a little more credibility. The trick is to not give too much away and not to expect too much. Good advisors are busy, and while they may initially be very excited about your company, you need to continuously ensure they budget a few hours a month for you.
VC is not the only way to get money. The best way to fund your company: sales! Get a few customers and treat them like kings, you’d be surprised how far word of mouth from your initial clients can spread. Once you have some cash flow, you could then get a business line of credit. This gives you a significant amount of money to work with without sacrificing any equity. If you don’t qualify for traditional loans, there’s also venture debt, which is basically a loan from a VC with the right to purchase equity or stock, as collateral.
There’s crowdfunding sites like Kickstarter and Indiegogo of course. If you get a website like Reddit or Hacker News supporting your project, raising the money could come more easily than you think. You can also ask people you know IRL, your friends and family, for the money, but that could come with some consequences (and tears). Even though you may be close, it’s best to put everything in writing and be a little formal about the process so everyone knows exactly what’s expected and when. Even if the money is a “gift”, get it in writing.
Need cash to even get started? Start saving. You could personally finance initially and raise VC later if needed. This will show potential investors that you believe in your idea and are willing to put your finances on the line as well. You could also take on a business partner who puts up his or her finances, but just make sure you iron out all the details ahead of time in case the relationship dissolves.
Time invested in raising capital is time NOT invested on improving the product. I am a product CEO, so I feel the time I invest on product development has the potential for much higher returns than going to dinners, events, and pitching every VC I can get my face in front of. “If you build it, they will come” …hopefully. With Voice123 and VoiceBunny, I had enough financing to get the MVP out there and I knew that if I built a great product, it would start to generate sales right away. I did the research. I knew there was interest in the service and had potential clients lined up right at the beginning. Not to mention, if you do decide to raise a round later, having an actual working product is much more impressive than a Power Point.
There’s no going back after you raise capital. You can divorce your spouse, but you can’t easily divorce your investors. You are in a long term relationship and there’s nothing you can do about it if that relationship begins to sour. If you definitely need to raise money, invest time researching VC firms and finding one that is a good “fit” for your company. I’ve seen so many new, enthusiastic entrepreneurs give away a ton of equity and control, not realizing until it’s too late that their investors don’t share the same vision for the company.
Now that I’ve said all this, it doesn’t mean that I will not raise capital. The point is that the option will always be there and there’s no reason to rush it. I always keep my long-term goals and vision in mind with every decision I make for my companies. Remember, VC funding is not the objective, it’s the means to an end.
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