Deciding to Raise & Raise Amounts
Deciding whether to accept outside investment or capital is a decision that can greatly affect your ability to grow and control your business. This sections covers perspectives on when and whether your business should raise money, and it provides guidelines on how much money you should raise. It also covers logistical matters, such as when during the year investors usually invest.
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Sadly I encounter too many entrepreneurs (often first-timers) who want to raise capital too early and aren't ready to hustle to build value before going out for funding. The reality is - unless you have proven yourself either by having created value before (aka you're a second, third or nth-time entrepreneur) or you have actually created value - you will spend endless cycles chasing capital. And the capital you might be able to raise ends up being dumb capital as the smart investors will chase the entrepreneurs who have created value.
Being swamped with funding is a problem that most early stage companies would love to have. However, as an investor watching my portfolio companies and other start-ups in the market, I can see how large rounds negatively impact the culture of budding business. What’s the issue with too much funding? Here are four key drawbacks.
The question of when to raise money is one of the few times that entrepreneurs and early-stage investors have somewhat divergent economic interests. If you control a large investment fund, you always have the option to extend a company’s runway. The entrepreneur doesn’t have this option. I’ve even heard some entrepreneurs whisper about Machiavellian VCs who deliberately try to get you to the end of your runway so they can negotiate harder. I think this is a bit of a conspiracy theory. Almost all VCs I know care primarily about the success of their companies and not about extracting every last point of equity.