Does everyone need an investor?


1

As the title says, does all startups need investors?

What about web applications that are made by a colleague team with costs only the hosting server?

What If they have an office too, nothing too fancy, but ideal for the purpose of meetings?

I guess they need a big amount of money for advertising though, but what else?

What are some other reasons that finding money from investors is a must?

Investors

asked Sep 20 '11 at 12:45
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Nikolai
125 points

4 Answers


2

Absolutely not.

We can tend to get the idea from news reports and places like TechCrunch and Y Combinator that every startup has outside investor funding. But that is a misconception.

There are many successful businesses that don't have investors. In fact, if you can bootstrapp and build your company without one it is often better for the following reasons:

  • You can spend your time on the business rather than looking for an investor. Finding funding takes a lot of time which is a distraction from growing the business. Sometimes the business even grinds to a halt.
  • You will learn to manage your finances very well - because you have to. There is no spare cash for non-essentials and you will direct your $ to the growth of the business
  • You retain full ownership of your startup
  • Internal relations are a lot simpler
  • You learn to be self-reliant
Good reasons for having an investor is if they can contribute something more than money to the business:

  • They have relevant skills or experience they can use to give you wise advice
  • They have contacts which can significantly more the business forward

Note that You may be able to find advisors who can do this for you who do not have to be investors.

The only reason you really need an investor is:

  • You really need a large amount of money which is vitally necessary to grow the business. ie. You have large infrastructure or staff costs which are absolutely necessary to the operation of the business.
I personally would not take on an investor for an amount less than $250,000 and I would try other ways of funding it first. Personally, I prefer an idea that can be bootstrapped or at least grown to a point where it has been proven and has a reasonable income. Then you have better leverage in doing a deal with investors, if you want to take them on to grow the company.
answered Sep 20 '11 at 16:34
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Susan Jones
4,128 points

0

Well it is a difficult question to answer and depends what business are you looking to establish.

Since my understanding is you would like to do something in the online space, I would say no. You don't necessarily need an investor to develop your product (website) and it cost little to host it on virtual servers. If it would be only you and your business partners working in your extra time for no salary, you won't have any real human capital expenses too.

So my answer is yes, you can incubate and seed your business without investor, but note it will be a hard work.

Growing your business without an investor might be a bit too difficult however, since as your site grows you would need to invest more into servers, hire people to take care of technical or commercial side etc. and co-funding this from your cash-flow in the early stages might be close to impossible, unless you start something absolutely fantastic that would be a massive hit from the day 1.

answered Sep 20 '11 at 13:09
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Peter K.
194 points

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The issue is one of planning. First, figure out where you want to go and go from there.

If you see that you need to spend $100,000 on marketing and the founder don't have or don't want to put that in, then you need an investor (or investors).

There are many places to spend money: operating expenses (servers, hosting, office space, salaries, etc.), marketing (advertising, promos, etc.), and even finance (servicing your debt, etc.). Before you start to look for an investor, make sure you need one.

In general startups do get some sort of investment because funding growth through profits is very difficult unless you have a surprisingly profitable startup.

answered Sep 20 '11 at 13:23
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John
1,194 points

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Check this link out: http://37signals.com/bootstrapped List a bunch fo companies (including companies like github) who never took outside funding and basically bootstrapped themselves and then kept the business going via profits. Totally possible to run a company without outside investors.

answered Sep 21 '11 at 00:14
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Edgar Miranda
230 points

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