March 15, 2011

Investments: Ways to finance your business


  • self-financed, organic growth
  • FFF
  • Angel Investors
  • VC
  • public offerin


I would suggest for you to develop your business "on the side" until it is profitable and try to continue growing it organically. If you do so, you know your business is healthy and you don't need to take on investors that could potentially be detrimental to the long-term health of your business. It is often the case with professional investors like VC firms who focus on short-term “exit strategies” which might not be aligned with your goals.

Sometimes growing the company organically is impossible, especially if your business requires an investment in the infrastructure, or human resources. Before we proceed explain various types of investments, I'd like to add a word of advise; if you are a "business person" and try to develop a technology-based company, do not sub-contract engineers, find a tech-savvy partner, otherwise your failure is almost certain.

When you decide that you have to get some extra cash you could resolve to FFF, or your family, friends and fools. It is very important that you make it clear to them that money they are giving you are a loan as odds are that you will loose them and you will have to figure out the way to repay. You can offer equity to them, but that is generally not a good idea. Don't take the route of going to FFF lightly, many businesses fail and your investors might not care why it failed, but think that you failed them.

The third option is to find “angel investors” most of the time they are wealthy individuals who are not investing professionally, but would like “a piece of the pie” in your venture, or emerging market in general. This option is usually good, as long as investors consider from the start the investment as most likely a loss and stay off-hands as far as the management is concerned, especially if they are not experts in the field. Angel investors invest usually a small amount of money in range of $15K to $250K, this is usually called a "seed investment", or round A investment, depending on amount. In some cases they maybe very successful businessmen and have ability to "open doors" via their personal connections. Seed investment is used for creating a proof-of-concept, round A investment for developing the initial product.
  • having good VC company might be a great asset in several areas
  • opens the doors for new entrepreneurs to established businesses
  • provides management advise
  • provides legal advise
  • provides large amounts of cash when growth cannot be handled organicall


Having said that, taking money from VC implies that you will report to them every decision, that your business will be expected to provide 10x return on investment and that you might be replaced as a leader of your own company when it grows bigger. To receive VC money you will be most likely asked to move to one of the technology centers such as Silicon Valley, Boston or Austin areas. Taking VC money is usually called round A investment if no previous money was taken, or round B, etc. if you had prior investments. The VC companies are usually not interested in investing less than $2 million dollars, they are also investing in 10 to 20 companies at the time and expect only one of them to succeed, if you are not the lucky one your future might be very uncertain.

Uki's Google Java Technology blog