Pro's and Con's of Raising Capital for an Idea

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Estimated read time: 5 minutes 51 seconds

1. Pro's and Con's of Raising Capital for an Idea

2. How to Make a Pitch Deck That Will Successfully Raise Capital

Good morning and happy Monday - let's get smarter

Pro's and Con's of Raising Capital for an Idea

Over the past few years via Twitter and networking I have tried to throw myself in the venture capital/startup world

The craziest part of living in today's age is how quickly you can turn an idea into reality

I recently came across someone on Twitter who is under 21 years old living in India and who has sold 7 startups that he bootstrapped (self-funded), built in a matter of a few weeks or months, scaled them to a multiple thousands of monthly recurring revenue and flipped them for 6 figures

With ChatGPT, you don't necessarily need to code

I have asked ChatGPT to write code for me and copy and paste it

Think about the problems or mundane tasks you and others hate to do

Think of how to solve it

Then, you have the ability to hire a developer, leverage ChatGPT to code, or leverage a no-code platform like Bubble to build out your idea

The question becomes, if you have a great idea, do you try and raise capital from outside parties like angel investors or venture capitalists or do you self-fund it/bootstrap it with your own $?

I currently bootstrapped a software startup. The main reason? I wanted to have control over the direction, not have to answer to outside parties or pressure to scale faster than we wanted and burn people out, and to retain the equity.

However, if you have a BIG idea that will take a large amount of cash to get it running, it may be worth looking into outside capital.

The con's for me bootstrapping are by using overseas developers, sometimes we move slower and the communication is harder with different timezones and language barriers working on complex financial data

The pro's are it's cost effective and it doesn't require massive amounts of cash

On the flip side, if we had all on-shore developers we could move 10x faster but would have to pay $200k per developer

The chicken and the egg with bootstrapping vs raising outside capital

Here are some pros and cons of bootstrapping a business:

Pros:

Retain Control: Bootstrapping allows you to maintain full control over your business without diluting ownership or giving away equity to investors. If you sell down the road, all of the cash comes to you.

Cost-effective: Starting a business with limited resources can help you to focus on essential aspects of your business and avoid unnecessary expenses. You scale smart, you leverage consultants, overseas help, technology, rather than burning cash.

Self-reliance: By bootstrapping, you become self-reliant and learn to make decisions independently, which can help you develop a strong entrepreneurial mindset. If a venture capital firm comes onboard, they likely will require a board seat. This means that they will have input and say over the direction of the company.

Stronger Financials: Without external funding, bootstrapped businesses tend to have stronger financials because they must prioritize spending and focus on generating revenue from the beginning.

Cons:

Slow Growth: Bootstrapping a business can limit the speed of growth since you have limited financial resources to invest in marketing, infrastructure, and hiring.

Limited Resources: Limited capital can mean that you cannot afford to hire a team or outsource work, which can limit the potential of the business.

Personal Liability: Without external funding, the owner is personally liable for any debt or legal issues that arise, which can be a significant risk.

Reduced Leverage: Not having the leverage that external funding provides can limit your ability to negotiate better terms with suppliers and vendors.

In summary, bootstrapping a business can be a great way to start and grow a business, but it requires careful planning, patience, and a willingness to take risks. It may be a good fit for entrepreneurs who are willing to work hard and take on personal liability but may not be the best option for those seeking fast growth and access to resources.

If you are looking to raise capital, you likely to put together a pitch deck on your idea or business to show potential investors

Sequoia, one of the most successful venture capital firms in the world has a framework they like to see

Below is an outline of their ideal pitch deck

How to Make a Pitch Deck That Will Successfully Raise Capital

A pitch deck that properly tells your businesses story in a clear manner can be the difference between an investor pitch going extremely well or very poor

Pitch decks don’t need to be a 30 slide report covering all aspects of the company like a CIM (confidential information memorandum)

DocSend, who hosts most pitch decks, discovered that most VC’s spend on average 2 minutes and 28 seconds on the deck

That’s not very much time to make a good impression for a life-changing event!

What Slides Should be in a Pitch Deck

Company Purpose

Define what your company does in a single sentence

One of the biggest mistakes founders make is they cannot clearly describe what their product actually does

One way to help is to after your single sentence do a comparison

“Its like AirBNB for ____”

Help them paint a clear picture of what you do

Problem

Outline your customers specific problem and how they currently solve the problem

This slide should show investors how well you know your customers from discovery calls

If you haven’t spoke to current customers or potential customer pre-launch, start now

Solution

Show how your company’s solution solves the customers problem (are they saving time, money, what is the value created)

Show what your value proposition is compared to competitors and provide examples

Why Now

This is one of the most skipped over slides and its super important

Describe how your niche/industry has progressed over time and what has happened recently in the category that makes it the right time for this solution

Market Size/Total Addressable Market (TAM)

Identify the size of the market you cater to

Everyone tends to plop some high level industry size onto this slide

That’s a mistake

Investors want to know what the market size is to understand how much market share you have to capture in order for them to make a return on their investment

Competition

List out your competitors and what your competitor advantages are

Product

Functionality, features, product roadmap, traction

Business Model

Business model aka how does the business make money

Revenue, price point, AOV, LTV, Sales model, customers and/or pipeline

Team

Founders bios (past achievements, highlights)

Board/Advisors

Financials

Any current or projected financials

- Dev

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.