Being the CEO of a company is a lonely gig.  To placate yourself from the loneliness, you find people who believe in you and your vision and they back you by giving you money for a share of the business. They are supposed to stick with you through thick and thin… it doesn’t always work out that way.

It’s never easy having outside investors, regardless of whether they are VCs or angels.  I wouldn’t know, partly because I am an ineffective fundraiser, but mainly because I refuse to agree to draconian terms.  That decision is something that has nearly killed WatchMojo.com on a few occasions.  But as hard as it has been to get the company to where it is today, as every day goes by, I am pretty thankful about that.

I met Scott Rafer just a month ago at a Paid Content cocktail and I would have never guessed it then, but today he blogged about shutting down Lookery.  Scott is a very smart guy and a nice guy to boot.  He’s had his share of successes, one of them being Yahoo! buying his old company.

Lookery’s initially problem was being a Facebook-reliant company, this is something I have long criticized and warned entrepreneurs against.  I’ve even ridiculed VCs for drinking the kool-aid.  I won’t link back to those in this post.

What I will link to is Scott’s post, I suggest every entrepreneur and investor read it here.

Lookery raised $3.15 million in angel funding over the past two years, from notable investors and VCs including Charles River Ventures and former FCC Chairman Reed Hundt.

To me, that is a lot of money, and half the problem.

But Lookery avoided institutional money and terms, which I think probably gave Scott more options.  I found out today that one of our VC-backed clients was shutting down/fire-selling (who is that? I am not saying, at least not yet/not).  I am not going to write about the details today, but as I learn more about the details of that unwinding, I realize some thing stinks.  So in the end, I think shunning VCs gave Scott to go out with class, courtey and on his own terms.

This probably doesn’t make things less painful for him right now… but I wonder: Scott’s post on shutting Lookery down is titled “Couldery Shouldery”, I don’t know Scott that well, but my advice to entrepreneurs who are in a position to fund their own companies and avoid outside money altogether is Should Have, Could Have, Would Have Funded It Yourself.

After all, as much as WatchMojo.com has turned the corner, if I had outside investors, they would have shut down us down ages ago (just to be clear: if I was an outside investor and not the CEO, who knows, maybe I would have shut us down, too, due to the main disconnect at one point between our operations and our finances).

But by really putting my neck on the line, it forced me to find a business model and stick to my guns to make it work.  Today we announced supplying Coca Cola with videos on their microsite on MySpace. As proud as we are of that, we will be unveiling something bigger next week.  You have 24 hours in a day and one life to live, if you can live it without outside investors, here’s the sad but true reality: do so.

The other half of the problem is that once you raise any kind of money from outside investors, you give up a lot of rights in subsequent fundraising efforts.  You have one company to grow, but these investors have a handful to dozens of companies to worry about.  If they don’t want to fund in follow up rounds, you might be screwed.

As a student of business and history, I can count on my finger the incidents where outside investors actually help beyond money.  I won’t make any friends by saying that in the investment community, but I can also count on my fingers how many people in said community I can count on.

The good news for Scott is what doesn’t kill you makes you stronger.   The bad news is that while starting a company isn’t easy, keeping it afloat is even harder… but if the past 10 years show us anything, it’s that having too many notable investors is a sure-fire recipe for disaster.

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