Start-ups make three kinds of errors in early stages:
- They don’t prioritize the essential
- They don’t have the right talent to execute
- They don’t raise enough capital for fear of being diluted
The first is the hardest point to make. There is so much to do in a start-up: finding a facility, building a team, filing patents, licensing technology, getting access to capital equipment and reagents. It is often easy to forget that there is only one thing that builds value in start-ups: getting to the next strategic inflection point! And to do this, the start-up management has to build a credible set of milestones for taking their company from idea to marketed product, and identify which milestones are measurable and visible to outsiders. Hitting these milestones, be they new patents, or early proof of concept clinical data, or clearing toxicology hurdles should be the focus. Instead, I have seen young CEOs worry about office locations and facility upkeep…not a recipe for success.
The second is easier to understand and execute: building a start-up is a challenge per se, and the best way to prepare for the challenge is to find the best person for the job, attract this person with the right combination of cash and equity, and unleash him/her to tackle the problem. Too many teams are compromises about turf battles in which the right person is not aligned against the job in hand.
And lastly, it is very tempting for entrepreneurs to build cap table models and get worried about how money they will make at the end of the day. Well guess what? If you are constantly worried about raising money, your eyes are not going to be on the ball (in this case, the ball is product development). So my advice to entrepreneurs is, “if you have to err on one side or the other, it is far better to have raised too much money to not having raised enough.”