Do More Faster: TechStars Lessons to Accelerate Your Startup

Part 5. FUNDRAISING

Most companies come to TechStars with a goal of raising money. One of the first things we do is make them take a step back and ask themselves "Do I need to raise money?" We're quite emphatic that the answer can be "No." Many great entrepreneurs are bootstrappers and huge companies have been created with little or no outside investment. And in every TechStars class to date, there has been at least one company that bootstrapped its way to success, such as J-Squared in 2007 and Occipital in 2008.

Of course, reality often knocks loudly. The vast majority of the startups that we work with will not be able to achieve profitability quickly enough to avoid death. So they look to investors—both angel and VC—to help them get their businesses up and running.

Entrepreneurs often fail to recognize that this is a major decision. When raising money from outside investors, there are always trade-offs. Before you raise money, the company is unambiguously your business. After you raise money, regardless of the amount, you now have new partners in your business. Investment usually comes with some level of board control and an expectation of larger returns. At the minimum, you have new people to share your ups and downs with.

Investors can be a great thing for a business. But they can also cause problems. Understanding the trade-offs, how to communicate and manage expectations, as well as what to expect is critical. Like any new relationship, the dynamics between you and your investors ...