Startup founders saying they have to raise money before they start selling a product is “absolute horse shit”, Freelancer CEO Matt Barrie says, and funding from venture capitalists should be avoided wherever possible
Speaking at SydStart, Barrie says these startups need to be focusing on actually becoming profitable rather than looking to VCs for funding to keep the business going
“A lot of people say they can’t get going until they raise some money. That’s absolute horse shit,” he says.
“A friendly venture capitalist is not the solution to all your problems. You are the solution to all your problems.”
Freelancer only sought one round of funding before publicly listing on the ASX, and Barrie says startups shouldn’t set out to seek venture capital.
But if they do, he says there are a number of things they need to do to ensure they don’t get “screwed over”.
“Raise enough money to cross the Valley of Death,” he says.
“Make sure you raise enough money to get yourself to a demonstrably increased value of the company.
“Be careful that every dollar you raise you’ll make a return on investment.”
Founders need to look into the investors’ history and backstory to make sure they actually know what they’re talking about, and have experience in a similar field, Barrie says.
“Only operators of business will understand to not get too excited if you have success or too upset if something goes wrong.
“Think from the investor’s perspective. You need to get the right type of investor.”
Entrepreneurs also need to make sure they shop around all investors and don’t jump at the first sign of cash, Barrie says.
“If you’re out there raising money, you need to shop till you drop,” he says.
“If you only get two term sheets for your deal, you will get screwed.
“Most startups find the first person that shows any interest and focus all their energy on them. That’s a big mistake.”
Although founders will often be handed a novel-size book of documentation when securing VC investment, they need to read through all this information and make sure they understand it all.
“Read and understand every single one of the documentations, or you could lose control,” Barrie says.
“If you lose control of your board, you lose control of your business.”
Barrie says he often sees startups overcomplicating things by getting too many people on their board, too soon.
“You do not need 17 people on a board for a company that’s making no money,” he says.
“The best number for a startup board is three.”
He adds that a board should always be an odd number to make things a bit easier for those difficult decisions.
If it all possible, startups should follow in Freelancer’s footsteps as raise as little VC as they can, Barrie says.
“Do not raise money from VCs, sell something to customers as quickly as possible,” he says.
This article originally appeared on Startupsmart
Denham Sadler is a former editor of StartupSmart. He was previously a journalist at the publication and has worked as a freelancer for the Guardian, the Saturday Paper and the ABC. In his spare time he likes puns and jaffles.
