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Friday, November 27, 2015

Starting Up A Startup

Get real...or get lost. That's what investors and venture capitalists say.

I've consulted with various startups in various industries over the years. Most prospective founders -- who never end up as my clients either for legal services or management services -- are daydreamers. 

They make the mistake of thinking that others will invest their own money, and assume the risk, that the founder himself will not do.

That is the height of stupidity, of arrogance, and of disrespect.

You should have at least $10,000-$25,000 of your own money to invest in your own venture. This is a modest amount and most people can get this amount from credit card balance transfers. This amount is needed to set up the legal structure for a business entity with a separate legal existence, open up a real bank account and have some funds to start development and so on. (This is also why I ask startups for a retainer, because the "real ones" actually come to the meeting with a real check, and leave having written and endorsed a real check.)

Everyone else is either full of nonsense, has no money, or is trying to get advice for free. Someone who claims he or she cannot raise and document having it and contributing it into the business (that is, into a segregated business account) is either a fool or a faker. The investor need not decide which is which; he will simply shake your hand politely, walk away, and toss whatever materials you've given him into the nearest waste basket.

If you cannot obtain and document that you've spent this on your own startup, it is reasonable for a prospective investor, lender or landlord to assume you have no friends who think your venture has potential, you have no money of your own -- which supports the inference that you are an absolute failure, loser or fraud  -- or you're simply too smug to spend your own money first. 

My advice to you is that if you don't have this minimum capital on hand, you (a) have no business starting a business, much less (b) asking for investments from anyone else. In fact, asking others to invest in you, when you are unwilling to invest in yourself, is a sign of disrespect and insults the intelligence of your targets. 

And when you insult the intelligence or integrity of others, you burn credibility and assume a risk of being remembered in the future for all the wrong reasons.

Eric Dixon is a New York-based lawyer and startup manager who has advised numerous young businesses on various matters.


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