I was thinking about the wide gulf between having a great idea and going to Angels and VCs for money while listening to the “Meet the Investors” panel at Maker Works in Ann Arbor.

It struck me that VCs, Angels (and SPARK) are essentially like banks and mortgage lending — something we are all familiar with.

What I always heard about banks growing up from my father was that banks are happy to lend money to people that don’t need it. Meaning that if the borrower already had collateral for the amount borrowed or had a large enough income that there would be no risk in paying the loan back, the bank was happy to loan the money. (It’s been my experience taking many loans having been rich and poor that this is oh so true. No criticism here — it is business.)

Everybody knows you won’t get a home loan if you have no collateral and don’t have a job — forget it!

One has to think of a startup going to a VC or Angels like he’s going to the bank asking for a mortgage loan…what’s the collateral, and what kind of job/take-home pay do you have?

Here’s where some shorthand thinking occurred to me that people may find easier to grasp – someone has probably already said this somewhere else but here was my thought:

Your startup team is like the collateral – your team is the intrinsic value in your company.

No team = no collateral

Your customers and income (traction) is like your job and earnings.

No traction = no job

So in the startup world you may think, if I had a great team, customers and earnings then I wouldn’t need to ask for money…exactly! The best time to seek funding is when you aren’t desperate – assuming you have a good reason for seeking funding in the first place.
That leaves us with the wide gulf between a good idea and asking for funding. I would suggest the Lean Startup method/books, the Business Model Canvas, and some time learning about the process.
Then work your idea. Get to at least a mockup. Then try to build your team and test your idea on real potential customers. Then bootstrap your way to traction, then think about asking anyone for money, but not before. (This may not be possible for all circumstances but it would be my default plan without having any other).

Of course this is a very simplistic explanation, and I’ve posted a link to a great article on the subject here.