by Ryan Frankel
Should we raise capital? If so, how much and from whom?
As a data-oriented individual, I wish there was a magic formula that we entrepreneurs could use to answer these critical questions. Unfortunately, there’s no such thing and we instead lean on the advice and experiences of others to make an informed decision.
Here’s one #entrepreneur’s perspective on how to approach raising venture capital:
Should I raise venture capital? First, we’ve become so accustomed to reading stories about massive capital raises at outlandish valuations that we forget that not every #business is fundable. Let’s not be so bold to forget that raising capital is hard and successes in doing so are more a function of the caliber of team than the idea itself. Just because you want to strike out on your own and launch a business does not imply that investors will be banging down the door to take part in your journey.
We struggled with the decision to raise outside capital. Ultimately, we saw how our growth was impaired through bootstrapping. Absent the resources to grow our team and accelerate our development, we would end up owning 100% of nothing rather than a smaller percentage of something capable of leaving a dent in the universe. Ultimately, the experience of being thoughtful about each bootstrapped penny enabled us to be good stewards of our investors’ hard earned capital.
How much should I raise? Raising capital is an all-encompassing experience that redirects one’s attention from daily business activities. I always suggest that an entrepreneur raise enough so that she can refocus her efforts on growing the business without needing to raise more over the next 12 – 18 months. You never want to give away too much of your company at an early stage but your number one job is to ensure there’s enough capital in the bank to keep the doors open and the business humming. We backed into our costs, including team salaries, our hiring pipeline, technology investments and the cost of customer acquisition to determine an appropriate raise and we worked with our investment partners to help us achieve our objectives.
From whom should I raise capital? No two dollars are the same and an investment from an involved #investor with experiences and/or relationships is vastly superior to a passive investor. Do your due-diligence on prospective investors and ask for a list of references. It’s tough as nails to turn down investment capital, but just like cofounder relationships are akin to a marriage, so is the investor-entrepreneur relationship. Ask poignant questions that allow you to best understand the style of each investor and consider how each investment partner will complement each other to create the most powerful engine behind your growth.
What have your experiences taught you about raising outside capital and what advice would you impart to others?
Featured photo credit to longest.com