The best advice about venture capital an inexperienced entrepreneur can receive is that you probably shouldn’t try to raise it.
We’ve told you this before: the vast majority of companies are not the kind that should seek venture financing. To sell off a piece of your company at an early stage, you need to be able to articulate why you can expect outsized growth. Just about anyone will tell you that you’re better off growing a company on customers and revenue.
There are cases in which raising outside money makes sense: funding aggressive market share accumulation or a high-risk, high-reward landscape for a highly competent founder. Even then, it’s often a good bet to start with customers before investors.
Among Technical.ly’s favorite frank-talking small business advisers is Frank DeSantis, the recently retired former head of the Emerging Enterprise Center incubator. He’s given stern and serious advice for new founders for years.
He often finds founders that want to bring in investors for the wrong reasons. “They say, ‘I want money because I haven’t been paid for two years,'” DeSantis told us a few months back.
“Everybody thinks they want money. Everybody wants money,” he said. “But they don’t often think of the investor perspective. So they’re not really prepared to ask for money.”
In a place like Delaware, where there isn’t an embedded culture of high-risk entrepreneurship, that confusion is rampant. In 2015, Delaware was in the bottom half for both number of deals and amount of venture capital raised locally, according to federal numbers (spreadsheet here). When Wilmington is included in Philadelphia regional numbers, it’s a different story but that’s not quite the whole story.
Founders here, said DeSantis, often confuse raising money as “winning” something. But really, bringing in capital to fund the expansion of your business (“friends or fools”) is an exchange: trading partial ownership of your company for money in a negotiation, he reminded. It’s a strategy, not a victory.
The culture is changing. The University of Delaware’s Horn Program for Entrepreneurship is educating a new class of young founders, and coworking communities like The Mill are allowing for more culture change, said DeSantis — in addition to programs like the one he once ran.
“No investor cares about you first. They want a return,” DeSantis said. “The more entrepreneurs in Delaware who know that, the better.”
Knowledge is power!
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