Thursday, August 14, 2014
While some investments merit an equity position because the company is on the fast track for growth in a highly desirable industry, many startups are not. In reviewing business models, there's a cost set aside for sales, marketing, and product development, but rarely does one see the cost for funding. In fact, most business models don't even take funding into consideration which is one factor why so many entrepreneurs spend an inordinate amount of time raising funding. There's simply no room for the investor in the business model.
The equity raise is giving way to the revenue-based funding investment. Investors are looking for revenue streams and attaching to it. The implication to the entrepreneur is that they have to develop business models that take in account the cost of funding. When was the last time you saw funding as a line item in a startup business plan?
More and more the world is moving to a pay for performance and pay for use. Funding will go to entrepreneurs who perform and entrepreneurs will pay for the use of money along the way, and not just at the end of the rainbow.
I recommend you start making room for the investor in your business model as that will be the primary way you'll be able to engage funding.