I also considered getting a small business loan, but quickly found out that there is a catch22 in place. Most banks (though I only visited one) want to fund already profitable businesses, since mine has no profit yet I could get no small business funding from them. So that option was quickly invalidated. I also had some interest expressed by some acquantances and family members as angels but they both fell into financial straits that prevents them from contributing. I'd been so focused on development that I've done little networking in the field in the last few years so essentially, no one (anyone that would be in a position to fund the launch) knows who I am. I concluded that if anyone knows the potential of my technology it is me, and by understanding my industry and the niches that my product and services was designed to appeal to, I have a level of confidence that the VC's could never see, even in a well written executive summary. All that said, I didn't get a single bite from those 8 or so VC reach outs, but that was not the reason why I decided to self fund, the reason mainly is simply one of pride. I worked hard on the technology to make it what it is and I should reap all rewards for its success and likewise bare all responsibility should it fail. I also feel that it would be unfair to me, to cop out by having a VC fund the project at the cost of a significant loss of my ownership of something I created 100% if it succeeds. One of my strong beliefs is that being independent of the monetary concerns of any investors is critical to allowing me to cater to the needs of the customer FIRST, before any other considerations. When you go VC, no matter how much you try, there will come time to make decisions that punish the customer because the investors want to save their rumps in some way or boost profit in a way that is not aligned with the original vision of the product or service. Self funding ensures I am the only captain on the ship, and there won't be any mutinies.
So, having mulled all this, I thought to myself ...how do I self fund if I am flat out of money? I have whittled away just of $70,000 on the development process while in stealth mode for the last 6 years. That includes my living expenses, a car bought and trashed and a European vacation. I realized I might have had the funds for the self funding if I hadn't put so much money in the stock market, oh well one of my financial mistakes from the last 7 years! Regardless, I have a few thousand in cash and all my other money is untouchable in retirement savings. What to do??? Eureka! I remembered that I had two credit cards, both started when I was in college. In fact these two cards were part of my plans just before graduation to get a college loan and use it to pay for a brand new computer, that I could then employ in my post graduation job hunt. It turned out to be an excellent investment at the time and it worked! The credit card accounts were opened up to pay for the computer parts which were successfully used to land my first post graduate job, but today over 10 years later, those cards are my salvation. Fastidious attention to paying my balances in total every time I had them, allowed the credit limits on both cards to rise steadily. Combined both cards provide me with $30,000 of credit equity.
As loath as I am to fund my site launch on credit cards, it provides me several advantages that I could not otherwise get if I pursue the VC route.
- Time, I don't have time to spend hunting VC's and Angels down and begging for money. I need to launch the site now and start marketing. The sooner it is up, the sooner I can start taking customers and making cash. The credit cards can be used immediately, without having to wait for VC's to cut and send me a check.
- IP Confidentiality, since no VC's or angels are in the mix, I don't have to tell anyone about the details of my technology or marketing plans. I keep that close and eliminate the chance of anyone taking advantage of it had I been required to tell them for investment purposes.
- 100% ownership retained, I don't have to give 20% of my company to any investors, I don't have to change my customer focused principles to keep the investors happy and I am not pressured to "go public" to give the VC's a big payout. I can run the business at the right pace, namely, the one that benefits the customers first...outsized success for me will come down the line.
- Unlike a business loan or VC disbursment which I get in one lump sum, the credit card can be used incrementally. I can therefore shape the level of debt and risk I am carrying as my needs demand.
Of course the main drawback of the credit card funding route is, for the first few months I will be carrying a running balance for the first time in my credit history. The moderately high interest rate on the cards will thus ensure the companies finally get some money from me, but through their credit I will be able to launch the site and if I can acquire revenue to match operating costs within the first few months , the amount in interest I'll be paying out won't be that much at all. Unlike the late 90's when pretty much all new companies had to build their datacenters on site or pay for expensive colocation to build the servers, today , there are many managed hosting providers that allow you to literally manage as many leased servers as you require for a fee.
So here I am at the bet the farm moment, up to now I'd taken a moderate amount of risk in funding the project but it seems I need to really step into the abyss by the act of funding by credit. The amazing thing about this entire episode is how similar it is to the act I took over 10 years ago in taking a loan to get the computer. I had no idea how I would pay off the loan prior to talking it, I knew I would use the computer to fund my job hunt and was confident my skills would allow me to do that, sure enough they were. Fast forward to today, this time my skills have been poured into the distributed web framework and the applications that I will sell as services to customers, again I am stepping into debt but comparatively, I am actually taking a lower risk than I did 10 years ago as a college student on that loan. However, the potential for success is significantly beyond the goal then of getting a good job in IT. I've already signed up with a hosting service and have been working on the required code for providing service options and getting the software installed on the hosts servers. I'll be doing a lot more talking about my products and services in the next few days. Stay tuned!