Do you really need a VC?

Many young entrepreneurs believe that the best way to get funding for their startup is from venture capital firms who can write them a multi-million dollar check. The reality is that this is not the only way to successfully raise the capital you need to launch your business. Many entrepreneurs, including myself, are using equity crowdfunding to raise capital from a larger number of shareholders.

It is true that a venture capital firm might be able to write you a check for $5 million. However, you could also raise this same $5 million by having 100 customers write you a check for $50K each. This is what our healthcare startup Fruit Street did. We decided to fund our business entirely from physician investors and have raised more than $8 million from 200 physicians investing between $25K and $250K each. Many of these physicians are actually using our product and all of them act as advisors giving us helpful input to the business. Personally, I love having so many investors supporting us who are industry experts in the field that our startup operates in. Our investors are also a constant source of helpful introductions and support.

So ask yourself – would you rather have 200 industry experts supporting you as investors or one VC?

What is the difference between raising $5 million at once or by raising $200K per month in equity for 24 months? The answer is that there is virtually no difference. It may take you a year or two to convince a VC to invest, but in the mean time you can start building your product with the capital from your equity crowdfunding campaign. At a later stage when you have more revenue, you can always approach a VC, but you don’t need them at the beginning.

Publicly traded companies have thousands of shareholders and there is no reason a privately held startup cannot have hundreds of shareholders who support it.

It is my opinion that social media platforms such as LinkedIn, Facebook, and Twitter and equity crowdfunding platforms like Angel List and Seed Invest are shifting power away from venture capital firms and back to entrepreneurs. An entrepreneur today can pay $50 to run an ad about their product/investment on social media and reach 1,000 potential customers and investors in an automated way. This is a much faster way to gain investor support and finding the right investors for your business than pitching angel groups or emailing one investor at a time.

Crowdfunding is becoming more popular through platforms like kickstarter and indiegogo. Equity crowdfunding is growing on platforms like angel list and through the most common social media platforms.

In the entire history of my startup, I have not once thought that if I do not raise venture capital money that I will have trouble funding our business.

Even if your startup needed to raise $25 million in capital before becoming profitable, you could simply raise $25 million from 500 customers investing $50K each. Venture capitalists are not the only highly educated people in the world who are willing to support an entrepreneur who has a strong mission that resonates with them.

Which model do you prefer?

1) ONE venture capital firm writing you a check for $5M.

2) 100 passionate customers writing you checks for $50K each for that same total of $5M. People who actually use your product and promote your brand. Who believe in your social mission and your vision.

Both models can work. What’s best for you? That is for you to decide.