The next few weeks are set to be extremely busy for us. First, on the morning of Oct. 29th we've been asked to present to a "gathering of minds" - a group of different business owners and VC sources local to the Boise area. Given the rocky road of the recent economy, it'll be interesting to see how the investment landscape is evolving.
About an hour after that presentation, we have a luncheon to attend. BookLamp has been selected as a finalist for the Idaho Innovation Awards, and there's a luncheon and award ceremony in our honor... well, our honor and the honor of the other finalists.
Four days later, on Nov. 3rd, I've been invited to speak at Stanford University, which is an opportunity that I can't pass up. While in San Francisco, I'll also be connecting with two angle investors to make a formal introduction to the project.
Then, I fly from San Francisco to Seattle on Nov. 7th for another series of meetings up in Washington state. Then I get to go home and get back to work.
The state of the economy recently is likely to have a lasting effect on companies trying to raise money over the next year or two. Because of the position that BookLamp is in, I spend a fair amount of time discussing these matters with people that have a good amount of experience in raising money, or in investing money. In many ways the difficulty isn't going to be immediate money; venture capital groups and angel investor groups tend to raise their investment money in advance, and that money hasn't' gone anywhere. The question is really going to be whether there will be money available in a year or two years, after the current funds have been exhausted and the VC groups do additional money-raising rounds.
It's interesting to keep in mind that when people talk about whether a start-up "survived" the Internet funding crash of 2000, what they're really referring to is the lack of second round funding. A company that's small, with very limited expenditures is able to button down the hatches and survive on small income in the hard times. A large company that is either profitable or close enough to it that they can reorganize and break even, they are able to survive as well. The vulnerable start-ups, the ones that were killed off during the dotcom crash several years ago, were the ones that had grown large on VC money, hadn't established an income source, and needed extra funds to go the last mile.
At that point, they were too large to be able to cut back spending and survive - it's hard to bootstrap with 15 employees - and they were too small to survive without additional outside money. When no more money showed up, they failed.
What this means in present day, as I see it, is that companies taking money now, companies that are likely to need additional capital in one or two years, have to be careful to avoid the same situation. If your company gets two years out, with a large roster of employees, but not enough capital to reach profitability, you're going to need more money. And more money is going to be hard to find.
Any company starting out in today's environment - which isn't yet as bad as it likely will be - has to be ultra aware of the balance between investing the capital needed to grow, and investing the capital needed to remain or gain sustainability. When you take outside money, you're basically going from one stable point - small, early stage - and trying to make it to another stable point, which is profitable. Between those two points is a great deal of instability, and that's the last place you want to be when you run out of money.
Repeatedly I've had people that I take seriously tell me that money will still exist for good projects, and I think that's true. But we're certainly on the ebb side of the ebb and flow, and that should be in the forefront of every mind when people start looking for funds. I think every business plan being put together at this point should be designed to carry through from stable point to stable point.
Often times I talk to people that seem to believe that the goal of funding is to get you going, and that's not true. The fundamental role of funding is to get you to the end. The more you can think of it as the completing factor of your plans instead of the launching factor, the better off you'll ultimately be.
I think.
