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I'm staring well a start-up :) Currently we are using internal funds, and by estimates it will last for a good while, but if our growth(users servers etc.) exceed our sales, sooner or later we will need funding or end up loosing potential customers.

I first got interested in funding options, but aren't VC or even seed money another form of a bank loan (with 10x interests). The funding parties are not in the charity business. If I got $250,000 funding then this has to come out of the company + leaving the funding party a nice compensation for giving the money in the first place (which will be written into the contract in blood probably).

It seems to me that once you get funding unless you have a product that can sell like fire there is no way out, sooner or later the funds will dry out you'll have millions of visitors but no cash-flow to sustain it yet. So the company will start looking for future letters in the alphabet Series funding.. The new funds could become an exit strategy for the previous funding parties, but this is a loop that seems to me will end in a complete buy-out.

I want to grow my company and still keep it. Am I missing something?

Thanks

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A business which uses new investment dollars to pay off old investors absent profits is the classic definition of a ponzi scheme (en.wikipedia.org/wiki/Ponzi_scheme) -- and when the SEC has the resources to investigate/prosecute -- is illegal. Well, it is always illegal, just not always investigate/prosecuted. – Joseph Barisonzi Sep 30 '11 at 20:55

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The part you are missing is simply that investors expect that your company will eventually make a lot of money. If that happens, then that's how they get their money back (and more). If it doesn't happen, then everyone loses everything, but that's the risk they are willing to take as VCs.

If you don't see how your business could generate a lot of money, then don't even bother talking to investors, no one will invest. Professional investors (VCs) only care about businesses with potentially explosive growth potential. If you are a small consulting company growing at 5% a year, then you will never raise money.

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ok the answer is direct, i appreciate that. but my concept is a little like twitter. I run two sites and have 10k daily visitors (google analytics data) and around 60k page views a day. Which I plan to use to promote the new site. We are also developing Andorid, Iphone and Blackberry apps for it. And believe in our IDEA! I've set up 3 servers on 3 continents with load balancing synchronization etc. :) the site will launch in 4 languages. The bottom-line is that profits wont come as quickly as visitors. And I feel that we can probably keep it going till 150k/day visits and then poof! – Ekim Sep 30 '11 at 18:56
Ok, if you had started with: my current site does 10K uniques/day, and I have a clear plan to take it to 100K uniques, investors will listen to you. Traction opens doors. – Alain Raynaud Oct 2 '11 at 17:11
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Investor will invest in a business model they believe in. What they believe in is money. So, the investors will invest in a business that has a business model which will make them money. There are a couple ways they could make money. The easiest to understand is that the company makes a profit which can be distributed to them as an owner. If the company does not have a business model which can make money it is rare that the investor will put money into it.

Your "twitter-like" company will need a business model which can demonstrate that it will make money. This means that the revenue which it generates from customers exceeds the costs. The costs include acquisition and support of the customers -- as well as the technology back-end and the administrative/management expenses.

If profits will not come as the costs associated with the users of your services-- then you do not have a viable business model. You will need to increase conversion rates, increase prices, decrease costs, etc.

Some of these may be very touch choices.

If you can not find a business model that works -- then it is a hobby which will need to be subsidized by someone else's business.

The Exceptions

See my answer here to see examples of other ways that investors may make money without a business model that demonstrates profitability.

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