VC Money can be potion or poison depending on how you treat it
By Ashok Subramanian
When you actually sit and crunch numbers for your startup, you find that there is always that gap between what you need and what you have. This is what is the basis of ‘funding’.
In early days, the main premise of business was not to borrow. Somehow, because of that, small businesses stayed small businesses. The earlier wisdom is that a business could stay small, grow from profits, rather than infuse ‘external funds’. Borrowing meant that doing business with someone else money, and that was a strict no-no.
However, traders of the yore, and the banks of the recent past have always lent or borrowed money to ensure that ‘large transactions’ happen. With a more robust system in place, credit and loans started pouring in over a period of time. It was OK to borrow — even if you are a salaried guy for personal lifestyle, and it is also OK to borrow, if you are running a business and have the desire to grow. Now, the money is needed to market, build, add people-infrastructure and grow.
Then came the startups. Another level of comfort here — there are people who were willing to put money in your little idea or business, and you were also ok to borrow, as you want to ‘scale fast’. This essentially posed an inherent risk, the risk that was essentially become acceptable. Cheques were written at the drop of a hat. The success of few inspired many.
Then came the fall — the realization that burning cash is essentially not the solution to growth. The lenders are the VC’s who have woken up. The startups are in a quandary — well, not the better, saner ones. The food and hyperlocal saga of funded startups disappearing overnight seems to be the last straw in the camel’s back.
The essential part here is that there are bootstrapped startups that have shown success. These have gone the old way — use your money, to make your money. The startups that need cash have to now look at whether they get the cash at the right terms, and the right time, from the right investor. Many times, the terms are so stringent that the founders become passengers of the idea that dreamt to create.
The reason is simple — if you can avoid borrowing, don’t. If you have to borrow, use the money as a potion. If you borrow, because you have somebody to lend, then the money is essentially a poison – that lure is what leads to the downfall of the most.
Ashok Subramanian is a serial entrepreneur, business strategist and growth hacker. You can get in touch with him at email@example.com.