Minimum Resource Constraint – the Anti-Dilemma

It’s one of those things that you keep thinking about “how much to raise”. Having sat with my cousins (I sit on their board at again this week I realised that we often look at how much to raise in the wrong way. In the last few years, a recurrent piece of advice I was told was “raise as much as you can when the opportunity presents itself”. Whilst it seemed rational, it is actually the anti-thesis of what young startups should do IMHO.

Our own example showcased this – I for one believe we raised too much money and actually thinking back to the earlier days the difference in what we produced when we had $100k or $500k or $2m in the bank never moved the needle by the proportionate quantum; in fact not even close. Having spent time in the last couple of months thinking over this and having read Eric’s “the Lean Startup” I think the biggest mistake any startup can make especially first time entrepreneurs; is take too much capital. Inadvertently you lose focus…

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I have a simple example – you have three things you can do; each thing will cost you $1 to do. If you only have $11 you will be so much more focused and you will only have ONE priority. Now imagine you have $3; what will you do – 3 x the one thing? Probably not… you will actually split your focus / attention and rationalise it buy saying that you NEED to do this.

Also – the less you need to raise the less you focus on building a business for VCs and you spend more time building a business and solving real problems; intrinsically this will attract investors!


Hence the title

A lot of us have been told about resource as a “negative” constraint but I think it’s worth looking at Resource Constraint as an Anti-Dilemma (its a good dilemma!) of sorts – (obviously you need some resources). The less you have; the more frugal you are and the more focused you are as your survival depends on that one decision. The more you have the more you are likely to “diversify” and “branch out”; you end up juggling a lot more and actually reducing the “importance” of testing one thing at a time.

Everything being about a young company is about being lean…

economic meltdown – no VC? WRONG

So its official (ok I think it has been for a while) – the world is no longer the same is a phrase used again and again. Some of our friends in the valley (name begins with S and have a lot of cash) have also sent the SOS out to “invest in consolidation…hold your cash”…

I have met a lot of budding entrepreneurs in the last few days and all seem to be growing white hair thinking there is no more cash; infact in 80% of the interactoins I have had with press (more on this in next post) in the last 2 weeks the first or last question is always – how does the current economic climate effect your funding situation… and I think this is a worry a lot of startups are sharing so let me give my two cents worth after having spoken to some of the guys being accused of “holding cash”. Note:

  • Most of the funds the world’s VCs are actually sitting on under utilised funds – infact I know of some that are less than 25% pledged of total assets created in particular funds
  • Big pockets are still there – so there is no dirth of cash
  • However…the rules are now harder so if you think you have a new cheese making machine that you are looking to raise $10m for then the time is sadly no longer the right one but if you have a bonafide business that has real potential then there is plenty of cash
  • Note well… that valuations are a very “bearish” and most people will be hard pushed to give you top valuations from 2 years ago.
  • Present well… VCs will be a lot less forgiving – they need an excuse not to give you cash right now – not because they dont want to but lehman changed the world in september; the subprime crisis shocked the world over and like they say “things are not the same”

if any of you are still worried – pop me a message and i’ll try to calm  you down!