To walk through the valley of death means that death and misery are low points (valleys) in the human experience through which we all must inevitably walk and experience.
Although not as morbid, in the world of startup businesses, the valley of death is still grim. It is a low point in your startup’s life where your business suffers and all seems lost. Specifically, it describes how hard it is to cover negative cash flow while you wait for your startup to start generating revenue from actual consumers. Sadly, only 10% of startups will survive the valley of death after the first three years, according to a Gompers and Lerner analysis.
“Our startup overcame the valley of death by making believers out of investors. Often, you have ideas that are worthwhile, but you have to find investors who also believe that,” said Jason Eriksen, Ph.D., associate professor of pharmacology and chair and co-founder of Alzeca Biosciences.
Alzeca develops advanced imaging technology that helps physicians detect Alzheimer’s at a much earlier stage than ever before. Alzeca is one of 28 groundbreaking and innovative startups changing the world at UH’s Technology Bridge.
“Initially, our investors rejected us because they were disappointed that we couldn’t cure Alzheimer’s, and that we could merely stage it. That sent us spiraling into the valley of death. We overcame that by making other investors believers. We made them believe in our technology for detecting the disease early and that it would be life-changing for millions of sufferers,” Eriksen proclaimed.
Here are another seven ways to dig yourself out of, not just a hole, but the mother of all holes: the valley of death.
Planning your business is a good way to minimize risk. Such preparation involves determining how much money you will need to get to the revenue generation stage, and how much money you will need to cover costs in the likely event you fall into a financial hole. The more resources you’ve accumulated beforehand, the more padding you’ll have if you fall on your face.
Don’t Quit Your Day Job
Keep your day-to-day job to keep money coming in and your personal finances covered. Use your weeknights and weekends to put in work on your company while you wait to generate revenue. You’ll be making money while you wait for money. This way might take longer, but with proper planning, you can ensure that your lights will stay on while your startup struggles to bring in revenue while spiraling in the valley of death.
Find Funding From Friends and Family
“Angel investors and venture capitalists will feel a lot better about investing if they see you already have money at stake,” Eriksen said.
That pre-investor money usually comes from friends and
family. There is some weight to the idea that you should never mix business
with family, but there are exceptions.
You’re more likely to secure funding from friends and family if you show them you have a more-than-solid business plan. Your loved ones will want to see figures and metrics that have tracked what your business has done or what it is projected to do. They will also want to see that you are an expert in your business. It would also help to show them a payment plan where you outline when and how you will pay their money back.
Once you have friends and family funding secured, you’re a lot more likely to acquire more funding from investors, and the long, hard road out of the valley of death begins.
Call for Crowdfunding
One smart way to jet pack out of the valley of death is to launch a crowd funding campaign. If you know your tech, service, or product is a game changer, crowdfunding will put that to the test. This is where you’ll attain funding from everyday people who like what you have to offer enough to put all their faith in it in the form of dollars and cents.
Competitions and Grants
Enter as many competitions as you can.
“Because of the government’s recent surge in focus on
tech-based and energy-based startups, there are now more startup competitions available
in major VC (venture capitalist) geographic hot spots like San Francisco,
Boston, New York, LA, and San Jose,” Eriksen revealed.
While those cities are the startup hotspots, their activity reflects the current market for startups all over the country. Thankfully, that activity is at an all-time high, so you can rest assured that startup competitions are abundant in your own city, too.
This is your chance to show the world your hover board and attain funding you don’t have to pay back, all without even relinquishing any equity. These competitions are, get this, competitive, so it would wise to register as early as you can.
There might be a company out there that sees your product or services as congruent to their own business. Reach out to them and try to convince them that a joint venture would behoove both companies. This approach is not uncommon, and companies have been known to advance funding early on with the expectation that you’ll reimburse them once your revenue starts rolling in.
A Loan in the World
Somewhere out there is a loan with your name on it. Wallowing in the valley of death can really leave a business owner feeling desperate and alone in the world. So desperate, that is, that they might mess around and apply for a loan. This alternative is the nuclear option. A last resort. It’s only a viable approach if you’re willing to put your home or other big assets on the line as collateral.
Typically, banks will only approve loans to startups that are cash-flow positive. So maybe this option is best if you’ve succeeded with a few of the aforementioned approaches so much that they helped your company start generating revenue. Once you’ve reached that point, that’s the prime time to apply for a loan or line of credit.
“The phrase “valley of death” is appropriate because it is a death sentence for the vast majority of startups,” warned Eriksen.
That doesn’t mean you go down without a fight.
When Buster Douglas fought Mike Tyson, every fan, expert, and sportswriter counted him out. For the entire fight, they were right. His defeat was inevitable. Then the tenth round happened.
Not only did he not go down without a fight, he won the
bout. He beat the champ, and the odds. If you want your best chance at beating
the odds, you do everything you can. You fight. Loans, competitions,
crowdfunding, joint ventures; whatever it takes.
“The valley of death is only a death sentence if you allow it to be.”