But are there any benefits to not raising capital? What happens when you avoid taking on capital and take your time to build a company?
There are lots of hidden benefits to building slowly, although that doesn’t necessarily mean that it’s the best way to grow. More important is how you consider the benefits of avoiding capital and use them to your advantage.
If you refrain from taking on investors, you keep more equity. It’s an obvious truth that can be difficult to reconcile with the aforementioned benefits of taking on investors. So what’s the difference between a good decision and a bad one when it comes to investment?
Your formative years leave you pretty vulnerable to heavy dilution because you have very few assets to leverage. The further you can push the company ahead without raising capital, the stronger your position will be with investors down the road. Sometimes even getting as far incorporating the company, identifying the first few key employees, and creating a simple demo version of the product can create a lot more value in a short period of time.
In many ways, the time you spend without capital is an investment in retaining equity later on.
Avoiding capital can also help you find discipline and focus in your venture. As I’ve said before, being broke means being disciplined. When you’re broke you can’t afford to work on several disconnected ideas. Singular focus is required to produce cash. If you don’t, you won’t be around long enough to entertain shifts in direction!
Don’t get me wrong – money doesn’t always enable distraction.
But knowing that diversion of focus could keep you from getting your next paycheck is a powerful incentive to stay on task! In fact, being acutely focused, whether you like it or not, will end up saving you an incredible amount of cash along the way.