In this article, I share my thoughts on one of the most critical elements of venture success – How to get your venture financed appropriately? Many entrepreneurs struggle with the process of raising funds and either abandon their entrepreneurial pursuit or settle without raising sufficient capital to fuel their business growth.

Do You Really Need to Raise Venture Capital Money at This Time?
I often find that many entrepreneurs are unclear on why they need money for their startups. Some businesses are best bootstrapped and served better by having the customers fund their growth. Many service-oriented businesses – like BPO/KPO/IT Services businesses – could fall in this category. There is no reason in the world, why you could not find your initial customers and get started with them helping you drive the business formation and initial growth. Once you reach a critical mass of revenue and customer base, you would have earned sufficient credibility to approach the venture firms or private equity firms to seek investment capital to accelerate further growth of your business. By the time you seek venture capital money, as an entrepreneur, you would have created real value for your business, and the business venture should have been validated through your initial customer and revenue growth. Typically, from the seed stage to this point may have taken you 3-5 years. In these 3-5 years’ period you have built a real business, perhaps making $2-5 million in revenue, and now the timing is appropriate to evaluate if you are indeed ready for Venture Capitalists to help you accelerate your business. For all of us who have raised venture capital, there are always pros and cons of venture financing (like everything else in life!).

I am a big proponent of figuring out how to get your customers to fund your growth for this class of “service-oriented” businesses.

Do I Need Upfront Venture Capital for Building My Products?
In certain other types of businesses – Web 2.0 ventures, Software startups, Semiconductors, life sciences, clean tech, and technology led businesses you have to first invest to build a great product, before you can think through how to create revenues and customers. In these types of businesses, you are in a bind – you need upfront capital, but you may not have established enough credibility to go and raise the capital from the VC firms at the outset. What should you do in such a situation? Try your friends and family members or angel investors? Or go straight to the VCs to raise your initial seed capital to help build your product and startup?