Necessary but not sufficient

Startups live and die by the concept of necessary but not sufficient. A great idea is necessary but not sufficient to create a successful business. A certain amount of capital is necessary but not sufficient for success. Sales are still the critical factor. The same goes for a great team, discipline, even great advisors.

Luck, meaning randomness, is always a factor as founders navigate each of the many hurdles every new company faces. The startup process is exhausting. Good incubators, idea networks and investors all smooth the way during this daunting process.

This is not to say that money from experienced, accredited investors or professionals doesn’t have drawbacks. Many cities have established angel investor networks that shepherd startups through local incubators and into the hands of area investors who are looking to support the region’s economy and, as always, get a return on their money. This system represents an important lifeline for startups, but can also be limiting. Once a local angel investor pledges the first $50,000, $250,000 or $500,000 to a startup, founders often feel both relief for winning the offer and loyalty toward that investor. Because many founders view fund raising as a necessary evil, they then stop looking at the funding landscape or shopping their company until the next funding round.

This type of loyalty to local money can devalue a company. Investors who demand that a company forego investigating the broader market are conveniently keeping themselves out of a bidding process. If the foundation of a company is solid, founders should want the idea in front of as many seed investors as possible. Geography should not be an obstacle, as capital and ideas can move regardless of borders these days.

Still, the first local offer is, as a rule, a good one and an important step for new businesses. So the time to shop the company and survey the landscape is long before those first offers come into play. It is at the idea stage. This is where The Venture List series can help. It provides a quick reference for founders who want to gain a broad understanding of the startup network landscape.

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