Entrepreneurs Must Avoid a Dragon’s Burn or a Shark’s Bite
I have watched the TV shows Dragons’ Den and Shark Tank from their inception and I am thankful for these shows because they have provided a platform for millions of people to realize that pursuing their entrepreneurial endeavors is possible and that turning one’s new business dreams into a reality is within everyone’s grasp.
There is one aspect of the show, however, that sends a terribly wrong message to new entrepreneurs. That is the expectation that at the early stage of a start-up, entrepreneurs must hook up with aggressive investors and give up large parts of their companies for what are relatively small amounts of funding and support. The dragons and the sharks regularly demand 30, 40 and even above 50% of the control and shares of the company for providing relatively small portions of financial aid at, what is often, the embryonic stage of a startup. Young entrepreneurs beware. The types of shark and dragon deals you see on television are certainly not the norm for a very early stage enterprise.
Many of the companies featured on these shows are either at the seed phase or early startup stage, when money and angel funding should be available without giving up a large portion of the company. Entrepreneurs must really do their homework on the many other ways to get funds for a good idea being launched by a strong team of passionate entrepreneurs. The following are just some options that can carry you quite a distance:
Credit cards
Lines of credit
Family and friends
Government small business loans
Research grants
Friendly investors
Non dilutive financing options
The trick to avoiding a bite or a burn is to remain lean, focused, and humble on how you spend money. Spend the money on what will directly improve your product and on validating and iterating your product with your customers until you have figured out the exact solution and the precise market segment that will lead to success. Then, when you are ready to grow more substantially and need bigger levels of funding, take your time and be proactive. Regularly updating your spending forecast will ensure you understand exactly when you will run out of cash (runway) and need new levels of funding.
Plan your move ahead of time and don’t wait for your enterprise to be on financial life support to seek your next investors. Speak to successful entrepreneurs in your area to ask them how they secured funding and at what costs. Second, seek entrepreneurs who have launched a startup in an industry similar to yours or who have leveraged a technology similar to yours. They will likely have had to face the same challenges and can share with you important lessons learned. Research the various sources of funding available, seek out angel investors whom you feel will meet your expectations and who approach you with reasonable demands. Finally, there may also be
through local start-up support programs, accelerators, or other organizations and these mentors can become an excellent source of advice and insights to help you avoid a dragon’s burn or shark’s bite.
