Angel investor Joanne Wilson talks about the problems that can be created when startups raise more money than they actually need.
By Joanne Wilson (Blogger & Angel Investor, Gotham Gal)
There is something to be said for slow money. What do I mean by that? I am involved in a lot of companies that honestly do not need millions of dollars to get them to the next level. They need a nice shot of cash like $1/1.5m to get them to the point where they are creating revenues and building engagement. Sometimes too much cash at the wrong time can lead someone down the wrong path.
It is easy to forget how hard it is to build a company and how long it takes. Throwing money at a business is not the end all be all. There are steps. Building a foundation is essential. Being strategic about what roles need to be filled, what the model is going to look like, what the product will be and how money is going to be made. That does not mean hiring a bunch of people at once because an endless stream of cash has been brought into the company. Businesses do not grow over night. They take time and patience. Sometimes it takes a little longer than you think and other times it takes off like wildfire. I believe in slow money at the beginning not just an overwhelming amount of cash that can stop an entrepreneur from forgetting how they got to the place they did in the first place, by being scrappy, smart and calculating.
In addition to the concept of slow money is what role does an entrepreneur want to play in their company. An entrepreneur asked me this past week if it was okay for them to build something but not be the CEO. Would that be ok? I actually believe that it is totally ok as long as they understand that their vision is what needs to remain in place. Understanding that if the CEO does not work out that the entrepreneur has to step back into that spot. In many ways, an entrepreneur who understands their abilities is refreshing. Someone told me that the first thing they did was hire someone who had the skill sets they did not. One entrepreneur told me that she knew she did not have the skills to necessarily build the company out but wanted to hire the right person who did. I applaud that. John Doer talked about that in his interview that I watched over the weekend and from a wise investor it is really great to hear that it is okay to realize your skill sets as an entrepreneur. Sometimes those are the best ones.
We read about companies being funded, successes that we believe happened over night, valuations that seem extreme etc. etc. every day but it is the companies that have entrepreneurs who have spent time thinking of the strategy, building up the foundation slowly and intelligently that are the majority of the real successes. The latest jello shot usually does not work in the long run or tossing money and increasing valuations at a brand that might have hit a ceiling or can not grab any more marketshare. Know what you need and be smart about growth. In the long run it will be the smartest decision an entrepreneur can make.
This post originally appeared on Gotham Girl.
Women 2.0 readers: Do you agree that too much funding too soon can trip founders up?
About the guest blogger: Joanne Wilson is an advisor and investor in startups, including Curbed (Eater/Racked), Food52, Red Stamp, Catchafire, DailyWorth, Editd, Ricks Picks, Cacao Pietro, Editions 01, Hot Bread Kitchen, Nest.io, Gotham Gym, The Moon Group and MOUSE. Her most successful venture is being married to her best friend Fred and raising her three kids, Jessica, Emily and Josh. Joanne blogs under the name Gotham Gal. Follow her on Twitter at @thegothamgal.