swombat.com

daily articles for founders

To raise or not to raise  

Joe Stump, founder of SimpleGeo, has written a pretty solid article examining whether people should raise capital or not. It's a balanced view that looks at both angles instead of dismissing or praising fund-raising outright, and mostly matches with my views on raising investment:

I look at capital, whether it comes from an angel, a VC, or a traditional bank loan, as an accelerant. It’s like gas. Sometimes your fire is burning nice and bright. You’re warm and have plenty of heat so why pour more gas on the fire? Sometimes, however, you’d like to start another fire, or maybe you’d like to burn down a house, or, possibly, you’d like your little glowing embers to be a fire more quickly than is otherwise naturally possible. These are all great reasons to reach for the can of gas.

Joe lists a number of good reasons to raise or not to raise. Reasons to raise:

  • Your business is capital-intensive.
  • You're at an inflection point and the capital will help you grow 10x faster.
  • You want to get some money out. (I find this one dubious - just pay yourself a better salary!)
  • You can't afford to keep working on your startup. (I disagree with this one, that's using investment as a cushion)
  • It'll give you access to a lucrative partnership.

Reasons not to raise:

  • It's hugely distracting.
  • If you raise too much, you might get hurt in later rounds.
  • If you raise at too high a valuation, you'll be taking early exit options off the table.
  • You give up control of your company.
  • Even after raising, investors are a huge distraction.
  • You may not get the attention you want or need from your investors.

Finally, Joe offers some tips about do's and don'ts of fund-raising, but you should really just go read the article to find them out.

More from the library:
Designing your sign-up pages
Startup sales: #6: Pre-qualification and triage
Stop looking for a cofounder