Are incubators and Angel money more harmful than beneficial to software startups?
Many people including myself agree that the cash investment from incubators, angel investors and any other type of investment have its benefits. When you join an incubator and/or get angel investors on board, you could also get great resources in the manner of experienced advice, partnerships, networking, free services, etc… maybe.
However, the fact that you do get cash is probably more harmful than not, in my own humble opinion. Yes, at some point you might need cash to grow IF you start getting successful and you need to invest in resources such as people and hardware to keep up with demand for your product or service. Advice from experienced people and potential customers is what you need when you are in the idea phase or just starting to develop your product, you don’t really need money at this point; you see, money in very early stages can make people lazy and feel as if they have accomplished something… when they haven’t, at least nothing that matters such as getting paying customers or releasing a product.
Why is money necessary for early stage software startups? and please read the question clearly, I am specifying software startups only, I know that my question does not apply to other type of startups which might require money to buy inventory, materials, buildings, licenses, etc… If you are a geek, a hacker, a techie, a coder or whatever the preferred term is for someone with skills to build software, then all you really need is an idea, passion, coding skills and maybe a friend to help you with the coding and design of your product; most importantly, you need customers, or at least people who are interested in your idea and are willing to pay for your product, potential customers. I am sure most hackers already have the hardware needed to build any software product.
If you are in the early stages of your startup, and you do get money from an incubator and / or an angel investor, what do you use the money for? I have heard that many people need this money to quit their day jobs and dedicate 100% of their time to their new venture, is this true? I think is bull-shit. If you look around, most early stage startups (not all of them) that have gotten investment money spend it on people, living expenses, working spaces and even to travel around to attend conferences… When you are building software, and I am only referring to the type of software that most tech startups are building now, you don’t really need more than yourself, a computer and maybe a friend to help you with the coding. And if you cannot afford to do that, then go out and get a job, it is not required to be jobless to build a successful company ya’know!
The idea that you need to quit your day job (or not get one if you are still a student) is incorrect. I think that having limited time as well as limited resources makes you better, it forces you to think about how to make the most of what you have, it forces you to get out there and talk to people about your product, it forces you to sell; without money, you don’t have the luxury of spending money on “sales” or “marketing”. You have to do it all by yourself and use the free and actually very useful resources you have at your hands, such as social media and word of mouth. Also, the excuse that you need to quit your job in order to build a successful startup is erroneous. There are many people who started their companies while they had a full-time job and were able to create very successful companies. If you don’t think you can create a successful software product without dedicating it 100% of your time then you are probably not fit to be an entrepreneur.
It is well-known that when you are hungry, you work harder and you don’t waste your time. When you know you can’t afford to fail, you just don’t, you make it work one way or another because you know you have nothing to fall back on. Your main goal becomes making money, and not how to spend it. Your main goal is to get customers, and not find a cool looking work space or to order some cool t-shirts with your logo on it to give away to other geeks. You just spend money and time in what you really need and nothing else, you use every free minute of the day to make your product better and to talk to someone about it via a blog post, a tweet, a phone call, email, in person, etc… Yes, in order to do this you’ll sacrifice going out with friends, you’ll miss some happy hours, you’ll quit spending hours playing video games and watching TV, at least until you start making money, you have to.
It is OK to still spend quality time with your family… you can always do your coding at night when the family sleeps 😉
In the other hand, if you are a software startup that happens to have money from investors or from an incubator, your mindset is not the same, can’t be. You know that you have something to fall back on, at least for a while, you also might convince yourself that your idea is going to work since somebody already believed in it by investing money in it, and that could be true, perhaps you have a great idea. However, I just don’t think that most people (there are exceptions of course!) will give it the time, or work as hard when money is available before your product has shipped, don’t believe it. I am sure most of you have heard the term “Hunger is a great motivator”, I agree and know by experience that it is true.
Of course there are exceptions to what I described above, you could be one of them 😉
Perhaps is time to create some sort of support group that offers advice, mentorship, networking, and no money. An incubator/accelerator where offering mentorship is the main goal, ingredient, and benefit; no money involved and not silly restrictions such as having to quit your job or move to a specific city, etc…
Disclaimer: I have never applied for an incubator/accelerator program, and I am not against these organizations, in fact I would apply to any of them if they offered better mentorship instead of money, and had an open mind about people with full-time jobs and living in cities with a low startup scene.
What do you think? What’s your take on this?