Who Needs Investors? Advice from John Mullins
Entrepreneurs with great ideas often struggle in the beginning with financial difficulty. In order to solve the problem, they seek angel investors, investors, and venture capitalists to fund their business. Not only is raising money hard, it also brings substantial drawbacks to businesses. Regardless of the benefit of getting funding, venture capitalist involvement may not be right for your venture.
John Mullins from London Business School came to Babson for a talk with the Babson Entrepreneurship Club. He shared stories of businesses that have been successful without funding from venture capitalists and the different approaches the startups used without any involvement of investors:
- Pay-in-advance model: Via
Via is a travel agency that brought a revolution in the online airplane ticket booking system. There was no direct access and online connection to customers so customers were not able to book in real time. Via enabled direct access to customers so that they can book tickets easily. Via used customers’ money as a source of capital.
- Matchmaker models: Airbnb
The company started when the founders charged people for staying at their house. Promising comfort, safety, and affordable price, the business now connects shelter providers and customers in more than 33,000 cities and 192 countries.
- Subscription models : TutorVista
TutorVista gathers teachers spanning India, US, UK, Australia, China, and South East Asia to satisfy demand for tutors. Through customer testing, TutorVista was able to find a price point that worked for their business.
- Scarcity models: vente-privee
vente-privee business model has proven to have high customer conversion. vente-privee sells limited products for a limited time which attract customers.
- Service-to-product-models: GoViral
This Demark-based company deals with video content. The company has adopted a pay per view model which has enabled the company’s growth over the years.
The examples Mullins share three attributes. First all the companies enjoy negative working capital, meaning that company’s liability exceeds available assets. It happens because the companies have high deferred revenue. Second of all, all the companies required no external capital to get started. Last, those that raised capital raised it to grow once the concept was proven. Mullins reminded that plan A rarely works. Entrepreneurs should rediscover the opportunity and identify businesses’ key strengths. In return, they will be able to find ways to succeed without funding from investors. Now that you know that funding does not only have to come from investors, find a revenue model that works for your venture.