How to Get Funding and the Smartest Ways to Use It | Entrepreneur
Serial entrepreneur David Zalik’s company, Greensky, a fintech platform for home improvement consumer loan originations, was acquired by Goldman Sachs in March of 2022. It is just one of many businesses Zalik has founded and operated since he launched his first tech company when he was just fourteen years old.
We fired off a few questions to Zalik to get his advice for founders on the all-important topic of funding. Here is his advice for navigating the financial ups and downs of launching and growing a startup.
When should an entrepreneur think about shifting from bootstrapping to seeking funding?
The short answer is as soon as possible.
Once you have proof of concept and sufficient credibility to attract capital, it’s best to avoid bootstrapping. An entrepreneur should only bootstrap when it’s the only option, which is generally when you don’t yet have a track record or the necessary credibility. Once you have the ability to raise capital, the next step is finding the right partners who believe in you. Remember that this is a journey, and you will face ups and downs, but as a founding entrepreneur, you should remain focused and ensure that you stay in control of the vision for your company.
What should an entrepreneur plan in advance before seeking funding?
I have been lucky enough to start several businesses and, in my experience, I think the most essential piece is to understand not only your passion and goals but every facet of the industry you’re entering into. That can happen by working in it or by finding mentors with more experience than you who can help guide you along the way. After that, it may sound simple but plan your business.
Before seeking funding, an entrepreneur should have clarity around the product or service you are providing, unit economics, how you will create and deliver the value proposition, and ideally, proof of the ability to create and scale the business.
How should founders strategize to use funding efficiently and responsibly?
The purpose of raising capital is to spend it on investing in the growth of your business, albeit with intention. Any business plan will have a use for proceeds, and generally, that is having the cash flow to hire the right people to help build and deliver your product or service. My advice is to raise enough money for 18 months of runway so that in those 18 months, you have accomplished enough to raise more money at a higher valuation.
It’s also important to know what the next major milestone for the business is and understand what it will take to get there. While keeping the long-term goals in mind, I am also always focused on these short-term milestones. Ultimately, I believe this contributed to the success of GreenSky because raising capital with a specific runway in mind as you get your business off the ground keeps you disciplined. You become very thoughtful with the capital and how you spend it, focusing only on the things you need to grow your business, rather than the luxuries. That mindset, which is particularly important when you’re running a company that is focused on helping other businesses grow, will continue even when your business starts to thrive.
What are smart ways funding can take a startup or small business to the next level?
An important part of being a successful entrepreneur is figuring out who you are – and, just as importantly, who you aren’t. You’re not going to fit every role, so you should identify where your weaknesses lie and partner or hire talent in those spaces to fill the void.
When seeking funding, the smartest thing you can do is to get investment capital from a non-competitive strategic partner that can provide validation and acceleration. For example, if you sell a product or service to truck stops, it would be smart to try to get an investment from the world’s largest truck stop wholesaler that already has access to and relationships with every truck stop across the country. This will help you elevate and scale your business.
What are common mistakes newly-funded businesses make?
The number one mistake is not knowing what your core product or service is. It is important to be very disciplined in understanding your business, what is (or isn’t) your market and audience, and to be intentional about using this time period to be as focused as you can. Early on you are in the exploration and discovery phases for determining the bullseye of your growth plan and the more you can be laser-focused there, the better.
A large part of what has made GreenSky successful is that we established what we wanted our product to be and who it would serve at a very early stage and never really swayed from that. Instead of appealing to a mass audience, we found a market with a specific problem to solve – home improvement contractors with a need for instant and seamless financing for their end customers. GreenSky is a differentiated solution for a very focused audience, and the core ethos behind our offering has never changed, even as the business has grown.
How has your role at GreenSky changed since it was acquired?
I’m lucky enough to have had the same great job for over 15 years leading GreenSky, the company I cofounded in 2006, but now with the support of a top-tier financial institution. At Goldman Sachs, I am co-head of Merchant Point-of-Sale Lending as part of our Platform Solutions segment, which is where our GreenSky business sits. Our focus remains the same as it has from the start – to continue to grow the business, deliver exceptional value to merchants and their customers, and support our people in the most effective way possible. Moving forward, we are excited to continue to focus on the home improvement sector and help our merchants grow their businesses and better serve their end customers.