“We are suffering from advisor whiplash,” Fred said.
“What are you talking about?” I asked.
“We are aiming to raise money for our startup. We’ve been fortunate to meet with lots of really qualified angels and advisors. The problem is everybody has an opinion on how much we should raise and on what terms. Net net, we are confused,” he said.
“What are these people telling you?” I asked.
“Some say we should raise $500k so we can get the product finished. Others are telling us to raise $1 million. Someone even told us if the interest is there, take $2 million,” he said.
“What do you think you should do?” I asked.
“I think we should raise $200k. That is all we need to get the product done. In fact, I am pretty sure we can get to cash flow positive on this smaller amount. Plus, it gives me the opportunity to hold on to virtually all the equity,” he explained.
“Because of your industry experience and early customer traction, you are in a unique position. Most startups at your stage go begging for money. Obviously, you and the others are convinced you can build a company of value. Did any of these advisors ask what you want to build?” I asked.
“You know what? No one ever asked us that question,” he confessed.
“So what is it? $3 million lifestyle business? $10 million with a three to five-year exit? Bigger? What do you want to build?” I asked.
He said, “I want to build a $100 million company.”
“Really? Do you even know what that means?” I asked.
“Let’s assume your target market is big enough to support a fast-growth $100 million company. Let’s also assume investors believe you can do it. I recommend you align yourself with investors who are $1 billion exit thinkers. Have you met any investors or advisors who think at that scale?”
“No,” he said.
You, the entrepreneur, must be clear on your vision. Here is what a clear vision accomplishes.
1. You will attract the right investors
I’ve invested in companies who were aiming to become cashflow positive on a reasonable amount of capital.
Sig Mosley, the godfather of angel investing in Atlanta, only invested in companies which would require large amounts of capital. I was shooting for $10-30 million exits. Sig was shooting for $1 billion exits.
Sig’s network included VC’s from Boston to Silicon Valley. I didn’t know any of those guys. If you want to build a $100 mill revenue company, then Sig is your man, not me.
2. You will attract the right employees
There are small business employees, and there are big business employees. And then there is everything in between.
If you are aiming to go really big, then you need employees who think at that level. These are the people who need lots of capital to build the infrastructure needed to get to hyper growth. This is the go big or go home group. They think in $10s of millions of growth each year. Not $10 million as a goal.
3. You will be at risk from day one
Big money requires control. There is no free lunch. You either go for the big bucks and hit your milestones, or you are out. The bigger the money, the harsher the accountability.
There isn’t a lot of grace in a VC fund. Their business is to generate returns for their limited partners. They do this, and they get to raise another, bigger, fund.
If they miss their numbers, they are out of business. Their limited partners are paying them for outsized market returns. You better be one of those, or you are gone.
If you choose to partner with angel investors only, then you are most likely limiting your upside and reducing your personal risk. Angels are in the deal with you. They want to see you succeed, but they expect you to do it on their limited capital investment.
Getting the Right Advice
When seeking advice, make your vision clear. You’ll attract the right people to help you get there while wasting little time with those who can’t help.
In startups, the right money helps make your vision come true. Money follows vision. Always.