8 Tips for Evaluating Funding Alternatives

October 19th, 2009 Sean Murphy

Many entrepreneurs planning their first software startup get stuck on funding and ownership issues. Here are some simple rules of thumb that may help you reframe an issue:

1. Revenue, especially break even revenue, is never dilutive of your ownership.
2. The right co-founders, while dilutive, substantially increase your chances of success: they give you a smaller piece of a much more valuable pie.
3. Paying customers are real proof that there is demand for your product. Getting funded is proof that an investor thinks there will be demand for your product.
4. A software startup in 2009 normally doesn’t need more than 10-25K to get started, if the founding team can provide the bulk of the labor to develop and market the first version of the product.
5. If the founding team cannot provide the bulk of the labor to develop and market the first product, think about adding co-founders not seeking funding.
6. If you need a salary from day one of your software startup don’t seek investment. Instead keep working at your day job, save your money, lower your burn rate, and work on your startup part time. This is hard.
7. Your most important investors are your spouse, friends, and family who will provide you with emotional support on the entrepreneurial roller coaster.
8. Professional investors don’t want control of your business, they want a return on their investment.

Entry Filed under: Funding, Idea Stage, Rules of Thumb, skmurphy