Financing your startups
Great article on Gigaom by Anand Rajaraman on how to finance your startups: Venture Capital, Angels or Bootstrap?
While I agree with most of the ideas in the article, IMHO, the technology matters even less (Perhaps, this discussion below is limited to Internet/Wireless tech startups).
If the startup is targeting a new market, then there are clearly no barriers to entry:
- There aren’t any economies of scale yet (no supply side barriers to entry)
- Maybe some proprietary technology — but not likely
- Definitely no customer captivity yet (no demand side barriers to entry)
- Government regulations — don’t bank on it!
Thus, what matters is:
- How quickly some barriers to entry are created
- How efficiently (cost) the operations are run: execution baby!
Therefore, I believe VCs care about the potential market size ($100m+) and the management team (has to be “backable”).
The article also touches on the notion of the inside view (founders tendency to ignore the base rate — misconception of the base rate and place too much emphasis on “uniqueness”) v/s outside view (VCs or angels viewpoint which is more likely to be based on base rates and information based on their previous experiences and less biased by the “uniqueness” of the current venture).
Tags: Venturing