In 2007 I founded Gamers Media, a vertical ad network for casual game websites. As an advertising network we’ve been able to accelerate our growth through revenue without the requirement of institutional investors, which has undoubtedly allowed us to iterate our business model several times and explore new opportunities that institutional investors may have otherwise felt were not aligned with our original vision.
Its my belief that if possible, founders should refrain from raising institutional capital as long as possible to figure out their business model. Raising capital too early from institutional investors may hurt your chances for success since their job as investors is to is to try to keep the founders focused on a clear vision, and sometimes your vision may require change.
So after nearly three years, hundreds of ideas and several iterations to our business plan, we finally have a clear understanding of the market and how we differentiate ourselves in a scalable and defensible way. Its very important to refine your business model until you feel you’ve found a scalable, differentiated and ultimately defensible plan before you raise institutional capital.
So in December 2009, we recruited Lou Kerner as our CFO and began meeting with institutional investors to raise the necessary capital to execute on our new business model, Banner.ly.
However, a common question we’ve been asked has been, “Why not just run this as a lifestyle business?”
Sure, there’s no question that operating an advertising network is a great lifestyle business for any founder. But Russ Fradin may have answered this question best when he said that in order to build an interesting long term sustainable business, it requires a lot of capital. And venture capitalists are paid to help entrepreneurs succeed. So as an entrepreneur that is looking to build a long term sustainable business, you should raise more money sooner from venture capitalists to increase your chances of success.
He also says not to put too much emphasis on sexy ideas or retaining as much control of your business as possible. Adify certainly wasn’t the sexiest business, but it was a very practical scalable business, which provides the technology and back office services necessary for companies to run their own online ad networks. And as Russ says, who cares if you retain control of a sinking ship. However, control is a matter of leverage and BATNA, and Naval writes extensively about this on his blog (subscribe to his RSS if you’re an entrepreneur).
Anyway, the overall point Russ makes, which I agree with, is that if you want to build a long term sustainable business, you need institutional capital from professional investors that are paid to help you succeed on your business plan. So that’s why we’ve been exploring the possibility of raising capital and not just running it as a lifestyle business.
Luckily for venture capitalists, there are entrepreneurs like us that understand and appreciate the concept of venture capital, or they wouldn’t have a job! :)
3 years ago - read more...