UPDATED 15:25 EDT / DECEMBER 08 2009

8 Tips for Evaluating Alternatives to Outside Funding

Many entrepreneurs planning their first software startup get stuck on funding and ownership issues. Here are some simple rules of thumb that may help you reframe an issue:

image Revenue, especially break even revenue, is never dilutive of your ownership.
image The right co-founders, while dilutive, substantially increase your chances of success: they give you a smaller piece of a much more valuable pie.
image Paying customers are real proof that there is demand for your product. Getting funded is proof that an investor thinks there will be demand for your product.
image A software startup in 2009 normally doesn’t need more than 10-25K to get started, if the founding team can provide the bulk of the labor to develop and market the first version of the product.
image If the founding team cannot provide the bulk of the labor to develop and market the first product, think about adding co-founders not seeking funding.
image If you need a salary from day one of your software startup don’t seek investment. Instead keep working at your day job, save your money, lower your burn rate, and work on your startup part time. This is hard.
image Your most important investors are your spouse, friends, and family who will provide you with emotional support on the entrepreneurial roller coaster.
image Professional investors don’t want control of your business, they want a return on their investment.

[Editor’s Note: Cross-posted at Sean Murphy’s personal blog. –mrh]


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