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Toxic investment  

Kicking off the series of Founder Stories via Stef, here's a tale of the failed startup Tab by Shawn Zvinis.

It's always good to reflect back at the end of a project especially if it failed. Shawn highlights a number of reasons why his startup failed, none of which are particularly original (unfortunately), but which must have been painful to learn. I'm linking to this one because it seems like yet another startup that was hobbled by raising investment:

Key learning: try to avoid raising a single penny until you have built a working prototype and have some (any) early revenue-and in a best case, revenue that can at least pay your overheads, so you can have the upper hand when negotiating with early investors.

And:

Our biggest mistake was listening to these investors too much, and we started focusing our efforts on how we could make Tab more investable rather than talking to customers and iterating the product. If we spent more time working on the product, the product itself would have made the company investible, rather than us jumping the gun.

My takeaway is that out of 10 key lessons learned, eight are related, directly or indirectly, to the funding, and may have been avoided if no funding had been raised:

2 . Raising too little too early: That's obviously related to funding.

3 . Building a not-so-minimum viable product: would have been avoidable if there was no funding to insulate the team from the realities of having to make money.

4 . Focusing on accelerator too early: accelerators are another step in the funding game that should be avoided in most cases. I chalk that one up as funding-related too.

5 . Going to the USA at the wrong time: would not have been possible to even consider without the cushion of funding.

6 . Starting scaling too early: according to Shawn this was kicked off by investors.

7 . Overvaluing qualitative vs quantitative: when you need to sell right away and start making money yesterday, it's impossible not to learn that adding some quantitative benefit to your customers is essential.

8 . Not generating any revenue: when you need money today, you don't talk to people who don't want to pay.

9 . Not building a financial model early enough: while "building a financial model" might be something you omit without funding, we're only talking about the theoretical financial model here. The practical one is being built every day, through actual selling and delivering.

Starting a business is hard and risky.

Starting a business with funding is harder and riskier.

More from the library:
Charging multinationals $150/m
Advice for dealing with journalists
Why most VCs give bad advice