EP 14: Why Founders Should Avoid Outside Money for as Long as Possible
Mike Collins | Founder and CEO of Alumni Ventures Group
Listen to this interview before you take venture capital, angel investments, or anything more than “friends and family” money. Mike Collins, experienced founder and VC, says there’s only one good reason to take institutional money for your business. (Listen)
Disclaimer: This is not a solicitation to sell securities, which is only done through appropriate disclosure documents and only to appropriately qualified investors.
Episode Summary: Mike Collins, CEO and Founder of Alumni Ventures Group (AVG), discusses business owners and outside capital — when they should consider taking institutional money and when they should reject it. Born from his own experiences, plus years spent working with entrepreneurs, angel investors, venture capitalists, and potential portfolio companies, Mike shares his insights on VC-gone-wrong and what founders need to know before they get involved with pitching for venture money. He also helps new venture capitalists understand their role within a company once money has changed hands.
Introducing Mike Collins
Mike Collins is not simply a guest on Founders & Funders, he’s responsible for directing his team to start this podcast. Mike wanted to use this platform to share stories and lessons learned in the trenches at Alumni Ventures Group — recently named the third most active VC in the U.S. by Pitchbook.
Mike has been involved in almost every facet of venturing, from angel investing and venture capital to new business creation, product launches, and startup incubation. He went all in on venture a few years ago after spending many years as a founder, inventor, and product developer, and he’s back on the show today to talk to founders about what they should consider before taking their first outside investment.
Three Takeaways from This Podcast
There are myriad podcasts and resources to help people who want to start a business. These resources give advice on everything from generating ideas and writing business plans to creating an MVP and filing legal documents for a new business. There are also a plethora of business podcasts featuring guests who are household names. Though their stories are inspiring, in many cases their “big moves” and pivots happened decades ago in a landscape that’s far different from what today’s founders have to navigate.
There are also a generous number of venture capital podcasts, many of which are technical and geared toward full-time venture investors. So what is Founders & Funders doing differently?
Today, and for the next few episodes, we will dig into a topic that appears to be largely unaddressed. Mike provides advice to founders who have already kickstarted their projects, made their first pivots, and are currently operating successful businesses. Now they’re considering raising outside capital to grow. As Mike says in the podcast, “When people start thinking about taking institutional money from strangers and professional investors, that’s a whole new ballgame.” And he should know.
More than once, Mike started a business and grew it to the point of taking on investors. In most cases, the influx of capital was a good thing. But, in this interview, Mike shares a story about one business that would have been more successful without the additional money. That experience, plus learning from the thousands of entrepreneurs and investors he has worked with since then, has helped shape his approach to taking institutional money. So this podcast should be insightful if you’re considering raising venture capital for your business or thinking about becoming a venture investor.
Here are just a few of things Mike touches on in the interview:
1. Venture capital is for growth
Mike says there’s only one good reason to accept institutional money, and that is to grow a business that is already solid. Once you take money, there is both an ethical and legal commitment to run the business professionally and to create value for investors. There’s not time to experiment with the business, nor is venture capital designed to help a founder “figure it out.” Businesses that may do well with outside investments are those with real data feedback from the marketplace, a solution that’s gaining traction, and who are ready to scale the business as it is rather than continue to explore possibilities.
2. Being undercapitalized can be a good thing
According to Mike, “When you’re undercapitalized and scrappy, it really forces you to be creative and make hard decisions. Those decisions often end up benefiting the company in the long run. If you raise too much money, a lot of it can get wasted.” Instead, he says you should delay taking capital and then take as little as you can from the highest quality sources to grow your business in a healthy manner.
3. Not all money is alike
Every time you move your business up the capital food chain, the flexibility you have as a founder goes down. Friends and family who invest in your business are often just doing so to provide support and are hoping you succeed. But professional investors have expectations and a say in how the business moves forward. In Mike’s experience, some investors will be supportive and help you build the business the way you want, while others can get in the way. Being selective in who you accept money from can have a big impact on the ultimate success of the business.
Mike also shares insighst that future venture capitalists should understand, such as how to invest in a VC portfolio rather than a single business. He also explains a recent move AVG made to open venture capital investing to an even wider audience of accredited investors.
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