Making mistakes while building a business is part of the startup journey. But depending on the severity of the lesson, it can set you back or even close the doors for good. Fortunately, at Techstars Startup Week Phoenix 2018 powered by Chase for Business, cofounders of Phoenix businesses shared their lessons learned when raising capital and using funds to hire the right talent.
The panelists included Andreas Ronneseth, cofounder of Revolution Parts, Sean and Thora Dowdell cofounders of Club Tattoo, and was moderated by Carly Levin, NEXT Director at J.P. Morgan.
For early-stage founders, raising capital from friends and family might be their first step to launching their business. But at some point, taking on funding or lines of credit to fuel your business might be on the radar. While the panelists suggested to stay debt-free as long as you can, at some point, taking on funding or lines of credit to fuel your business might be needed. When it’s time to raise, they said to have a strong game plan on how you’ll use the cash and pay it back.
“I feel that part of the funding I did was quitting my job at PayPal and using my savings,” said Andreas. “I worked out of Starbucks with free Wi-Fi and $2 coffees all day. We eventually raised $150,000 from friends and family. We are [still] bootstrapped and haven’t taken on funding. But we have talked with VCs, and you need to know what kind of business you want to run, how you are going to get there, and align with your funding partners.”
If you have a non-traditional business, lenders may need more explanation about one’s business model.
“We started with $7,000 from waiting tables,” Sean said. “Our first round was a SBA loan on a building. We are in a non-traditional business, and they looked as us as we were an unwanted stepchild and had a lot of explaining to do.”
Photo cred: Dave Seibert
All businesses will have ups and downs. But with any funding, you only want to take on the amount of debt you can manage, during the good times and bad.
“You need to have a good financial strategy,” said Thora. “Make sure that you aren’t going out of your scope and you don’t have a way to pay back an investor or bank. Make sure your mistakes are affordable.”
Whatever funding you do take on, hiring the right people can help you get through the triumphs and challenges of growing a business.
“I would surround yourself with like-minded people,” said Thora. “Hiring is a big expense. Make sure you have good leadership so you can work on your business not in your business. You need to delegate and work on your product or software, so you can work on your business and marketing strategy.”
Andreas said investing capital in the right people and building a trusting relationship has been key to his success.
“Find people who are aligned with you and your vision. We do provide equity and want people to feel ownership in the business. Beyond the ping pong and free lunch Friday, it’s about building trust with everyone you work with. You can build on that trust when things go wrong,” Andreas said.
In the end, if you plan to seek out investment, the panelists said to know your numbers, align with investment partners who share your vision, and consider taking a conservative approach to your projections – it’s better to under promise and over deliver than have an uncomfortable talk about why you didn’t hit your mark.
“If you don’t know your business, you’re dead,” Sean said. “Don’t ask someone to fund your dream, ask someone to fund your proven business.”
Read more about the Phoenix startup ecosystem on TechCo
This article is part of a Techstars Startup Week content series brought to you by CHASE for BUSINESS. Techstars Startup Week is celebration of entrepreneurs in cities around the globe. CHASE for BUSINESS is everything a business needs in one place, from expert advice to valuable products and services. Find business news, stories, insights and expert tips all in one place at Chase.com/forbusiness. Read the rest of our Startup Week series on TechCo.
