When founders think about capital, venture capital or angel investors often come to mind. I’ve always thought, though, that customers are the best and cheapest source of capital (that’s why I bootstrapped my company). Most people think of selling a product or service as the only way to obtain money from customers. It’s not. (It’s just the most common way.)

If a company’s solution solves an extremely painful problem, customers may be willing to provide capital in other ways. If the solution creates an enormous amount of value, customers will pay for it and may also be open to becoming investors. When you think about it, it makes a ton of sense. Who better to understand the potential upside of a company than someone using its solution? Obviously, this is less likely if your customers are small businesses, but you never know. A company I’m familiar with has an amazing solution that has the potential to eliminate tons of labor expenses. A large customer that spends a lot of money on labor invested and helped refine the solution. The investment was a win–win.

Customers can be a great source of capital. This is just one example. Early founders, don’t forget about them when you’re thinking about raising capital.

As a founder, I noticed that our strongest team members shared certain characteristics. From that point on, I looked for those traits when hiring. I was hoping to find more rock stars. Many investors do something similar. Their successful investments may have things in common; if so they look for those traits—which could predict success—in future investments.

Early-stage founders should look for patterns too—especially when they get feedback from professional pattern matchers. Feedback from investors is super useful to a founder, even when it doesn’t result in an investment. You’re likely to hear way more noes than yesses if you’re fundraising, and the noes are a great opportunity to pattern match. After all, investors see tons of companies and have a good sense of what it takes to succeed. Founders should ask for the why behind every no. Individually, it may seem like an investor doesn’t “get it,” but collectively founders may see a pattern emerge and learn that the opposite is true: they themselves are the ones who don’t get it, have a serious blind spot, or have a gap in an area critical to the business.

No, pattern matching isn’t perfect; everyone can be wrong. However, it can be a great way to understand what risks outsiders see in the business. At a minimum, founders can address these risks in future conversations with investors, which will demonstrate that they’re self-aware and have their finger on the pulse of the business.

I spoke with an entrepreneur in Europe this week. She’s solving an interesting problem that her background makes her highly qualified to tackle. We talked about her journey to date, including her previous fundraising. Her experience was similar to that of other founders: raising capital from investors in Europe took a lot of time and energy, which slowed progress on her product. Toward the end of our chat, she expressed interest in learning more about US venture capital funds.

The pandemic has forced investors to ditch the face-to-face meeting requirement. It’s pretty much all video calls these days. I’ve seen how this is allowing founders to easily connect with investors in other states. Investors are now interested in writing checks into states and regions they used to ignore because of geographic distance. Boundaries have fallen and more investors are looking to invest nationwide.

My chat with this founder got me thinking. Will we see a surge in international investing as well? What does that mean for founders and investors? Making international investments is more complex (or so I assume). I’m not sure what direction this will go, but I’m excited by the potential and plan to pay more attention to this.

This week I listened to another investor share her views on early-stage investing. At this stage, there isn’t much of a company. It’s just a few folks, an idea, and maybe a product or service. There likely aren’t customers, users, or meaningful quantitative data to inform the investment decision. She believes early-stage investment is about evaluating the following:

• Narrative – What series of events did the founders experience or observe that led them to a problem or unique insight that others don’t see?
• Story telling – How well do the founders communicate how they view the problem, how they want to solve it, and the impact their solution will have?
• Team – How strong is the team? Do they have what it takes to solve the problem? Do they have sustaining motivation and passion to weather the ups and downs of the journey to the solution?

I really like how this investor approaches evaluating early-stage investments. It’s simple and makes sense. Early-stage founders should consider these three points when they’re deciding whether to pursue a problem and when they’re pitching.

This week I had unrelated conversations with two entrepreneurs who’ve bootstrapped their companies. They now have paying customers. One of them is looking to raise venture capital, and the other recently raised it. Bootstrapped companies survive on customer cash flow. There typically isn’t a surplus of cash on hand. This means founders are often focused on how they’ll keep the lights on. The runway is usually a few months long, if that.

Both founders are now faced with the possibility of an infusion of cash and 18 to 24 months of runway to execute a long-term vision. Until now, neither has had the luxury of thinking that far ahead. Homing in on their vision hasn’t been as smooth as they’d hoped. They’re finding it difficult to shift their mindset from survival to articulating the full potential of their company and a plan to get there.

Bootstrapping versus raising capital from investors isn’t a one-size-fits-all decision. It’s specific to the entrepreneur and their situation. Founders should know that the path they pick to obtain capital will influence how they’re able to think about their business. Bootstrapping fosters a survival mindset and thinking only a few months out. Raising capital from investors allows for long-term planning and execution.

There are exceptions to every rule and founders can be wildly successful on either path, but this is something founders should consider when they choose the source of their capital.

Today I attended Outlander’s first-ever demo day. All the presenters were Outlander portfolio companies. They’re tackling interesting problems and are great representatives of Southeast start-ups. Here are the demo day companies:

• Talli – An IoT device and software that provides one-touch, mobile, and hands-free logging for infant care, senior care, and home health.
• ChipEleven – An open-source chip-building ecosystem that will spur hardware innovation just like Linux did for software.
• Barometer (formerly Vericrypt ) – AI-based software to help companies analyze, identify, and score bias in their writing.
• Spaceship – A continuous-delivery platform that helps companies deploy software faster.
• Strapt  – Cashless and contactless IoT dispensers that drive new brand engagement and insights for brands through free product sampling and actionable consumer data.

I personally worked with some of these founders to prepare for demo day and couldn’t be prouder of them! They did a great job and I’ll be excited to watch their continued success.

Outlander puts on a monthly speaker series called the Outlandish Speaker Series. Today, the speaker was Lo Toney, founding partner of Plexo Capital. Plexo is a unique fund that makes direct investments in start-ups and in emerging venture capital funds. Lo incubated Plexo while working for GV (the venture capital investment arm of Google’s parent company). The strategy was to increase early-stage deal flow through diversity in people. The strategy proved successful, and he later spun out Plexo into a stand-alone firm (GV is an investor in Plexo). You can read more about Lo’s strategy here.

Today’s session was super insightful. Lo did a great job of articulating his thoughts on what he looks for when making investments in companies. He did an even better job of sharing what he looks for when considering an investment in a fund and how being a fund manager is different from being a great investor. Lo’s wealth of experience as a CEO, investor, and fund manager was evident.

I’m excited about what Plexo is doing and look forward to tracking its success and the success of the fund managers it invests in.

Most start-ups fail because they run out of cash. They can have great press, a great product, and even customers . . . but still run out of cash. Understanding the cash situation is the founder’s responsibility. At CCAW, I received a cash flow report every morning. I always knew exactly how much was in the bank, down to the penny. Cash is a company’s oxygen. When you run out of oxygen, you suffocate.

In the early days of a start-up, the founder is responsible for cash. If investors are the sole source of it, the founder pitches to investors. If customers are the sole source of it, the founder sells to customers. If cash comes from both sources . . . you guessed it, the founder is pitching and selling. Absent product–market fit and a defined sales process, the founder is the rainmaker who keeps the bank account in the black.

Raising capital is a core part of the job for early founders. If you’re considering starting a company or you already have, take this responsibility seriously. If you don’t, your journey will be short.

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When I spoke recently with an investor in a medium-sized city in the Southeast, I asked him about his tech ecosystem. He thinks his city is moving in the right direction, but it keeps running into a couple of major barriers:

• Nontechnical founders – He comes across excellent founders regularly, but they can’t build a technical product. They struggle to find technical co-founders. If they don’t give up, they hire a development shop. His portfolio companies haven’t had great results with outside development shops, even when they have strong founders.
• Funding – The community has wealthy individuals and families. Their wealth derives from legacy industries that have historically been economic drivers in the city (not so much anymore). Founders struggle to raise funding because people who have the means to invest don’t understand tech start‑ups. It’s gotten better, but they’ve got a long way to go. They’re actively organizing a network of angel investors so people can educate one another.

I was happy to hear that this investor is working hard to help tech start-ups succeed in his city. Our conversation reinforced something I’ve thought for a long time. The South has talented founders, but to succeed they need support. Funding is a big piece. So is community to help them connect more easily and form well-rounded founding teams. I’m looking forward to working with this investor and others across the South to help founders reach their full potential!

Yesterday I shared my thoughts on ways entrepreneurs can derisk without selling their entire company. A friend reached out after reading the post and we had a conversation about private companies as an asset class to invest in. He isn’t involved in tech or start-ups, so I enjoyed hearing his perspective.

My friend views high-growth private companies (i.e., start-ups) as a truly unique asset class. He thinks a start-up is an amazing investment opportunity when it’s generating profits (not breaking even or losing money). The ability to generate more cash than the company needs to maintain a high growth rate is what makes it an attractive investment. He sees a supply-versus-demand imbalance that these companies can benefit from. Historically low interest rates have investors seeking higher returns. More investors are seeking this type of investment opportunity than there are companies that meet these criteria. As valuations for these companies rise, the return on invested capital goes down, but if the company is growing at a high rate and generating surplus cash, the return is probably far better than the return on holding cash in a bank account—a great investment.

My buddy makes some good points. If you can build a profitable company that’s growing quickly, it’s unique and hard to replicate. The higher the growth rate and the higher the profit margin, the more unusual the opportunity. If the entrepreneur can receive meaningful distributions without affecting the growth rate, the entrepreneur can derisk without selling ownership in the company and while the company quickly appreciates in value. That’s an amazing position to be in as an entrepreneur.

I think my friend makes a strong case for why entrepreneurs should maintain ownership of profitable high-growth companies. Having been an entrepreneur and having close friends who are founders, though, I can definitively say that everyone’s situation is different. Every entrepreneur must decide for himself or herself whether that advice works for their circumstances.