Although fundraising is not the deciding factor in the success of a company, it’s crucial to get the funds you need to grow your business. And sometimes that has to come from external sources.
We often see founders “sweating the small stuff”. Below we list the key considerations when raising capital and how we see founders worry about the wrong things.
This needs to be high enough to allow the company to raise enough money to achieve its next milestone of growth while limiting the dilution to ensure founders and employees are still incentivised to work hard.
- Tip: Leave your ego at the door! Raising at a higher price than someone else doesn’t mean you (or your business) is better. Price reflects the market at any given time, not the quality of your company.
There’s no “perfect” investor. Some provide additional support when asked and some silently support by doing nothing. However, beware the destructive investor. They can hurt companies and should be avoided at all costs.
- Tip: You only get to pick your investor if you have a choice. Getting a cornerstone investor helps bring others in but being too prescriptive can hurt you.
Ownership is often linked to commitment so retain as much ownership as you can, for as long as you can.
- Tip: Focus on what matters when the need to dilute arises. Arguing over selling 23% or 26% is a waste of time. Do what it takes to build the company for massive success
Raise only enough money to succeed – to reach the next milestone with a bit of buffer to account for unforeseen circumstances but not more. Media loves a huge raise but growing quicker than you’re ready to can be detrimental to your business.
- Tip: Raising money is simply a means to an end. It doesn’t yield success and usually results in more dilution.
Maintain momentum in your fundraising. With opportunities aplenty investors can find alternate options for their money if your fundraising isn’t moving along.
- Tip: Founders in too much of a hurry to close a round suggest investors make better decisions under extreme pressure. This is almost never true.