Do business owners have funding misconceptions that will stop them in their tracks?
Absolutely. Too many entrepreneurs believe that raising funding validates their business model. The only thing that validates your business model is customers. If you aren’t selling what you’re offering, no amount of funding in the world is going to fix it. Go back to your customers. Listen to what they’re saying. Don’t fall back on the assumption that your problem is lack of finance.
Another important point to remember is that strategic funding comes with partners. The right partners add value to the business beyond the cash injection. In general, funders should provide four types of capital: Mentorship capital; social or relationship capital, which provides access to a network of new customers, new markets and peers; human capital, which provides access to the best people you will need to hire as you scale; and financial capital, the actual funding required to grow your business.
Too many business owners only focus on the fourth type of capital, forgetting about the other three. On the one hand, this means that funders bring so much more to the table than mere cash.
Many business owners who have entered into successful relationships with VC or PE partners understand that often the other three types of capital are even more valuable than the cash. However, the opposite is also true.
If you’re a business owner who isn’t coachable, who can’t accept the idea that someone else might be better at executing your company’s growth strategy than you, or who doesn’t want to be held accountable to anyone, then strategic capital is not a good avenue for you.
This doesn’t mean you don’t have a good business, or you aren’t a good entrepreneur. It just means that the funding relationship won’t work for you or the funder.
Capital is not the same irrespective of where you raise it from. You’re entering into a partnership with someone who has their own business model, shareholders, goals and mandates. If their goals and values are not aligned with yours, it’s not going to be a pleasant or rewarding experience, nor will it be good for the business.