One of the biggest conundrums in entrepreneurship is raising money. When to raise, how much to raise, who to raise from. When things are going well, it’s easy to raise money. When things are not going well no one wants to talk to you and you feel like you are on an island.
Every time you raise money you sell a piece of equity away. An acquaintance of mine told me once that entrepreneurs undervalue equity.
If you are going out to raise money there are some things to consider outside of the business aspects.
- Does your ego need it?
- Does your team want to see it?
- Do you want to see a high price tick put in the newspaper?
- Are you doing it just for personal survival?
- Would it be better to shut the business down?
- Are VCs putting the pressure on you to raise? If they are, what’s the real motivation? Maybe they need an uptick to raise money for their next fund. What’s their motivation?
- Are VC’s putting pressure on you to raise because they love the company and want to own more equity in it?
- Are there competitive reasons to raise?
- Is the price of the round setting the company up for failure? Price it too high and underperform and it could be demoralizing. Price too low and you are selling equity far too cheap.
Every company confronts these issues at different stages. The dynamics of raising money change. At seed, it’s to get the snowball moving down the hill. Series A-C companies are doing it to keep the snowball rolling. Mature companies look at fundraising differently. I saw a story where Uptake recently raised another $50M at over $2B in valuation. Lyft just raised $500M at a super high valuation. I doubt that either company needed the money but had other reasons for raising capital.
One thing I have learned, capital raising is like Goldilocks. Not too cold, not too hot, it has to be just right.