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Do You Really Know How Much Capital Your Startup Should Raise?

    

Fundraising is rather tricky because companies tend to think that they should get as much money as possible, but that is not always the wisest course of action. With more money comes more expectations and responsibilities, so it is generally best to only accept what your company really needs to take itself to the next level. There are a lot of things to take into consideration when deciding how much the company should seek, including the maximum and minimum amounts that the leadership team thinks it can accept. Of course, there is so much more to the decision than that, and here are some of the more important points to consider:


Need Versus Want

There is a vast difference between what a company wants to raise and what a company actually needs to raise. Granted, there is no harm in aiming high, but a company seeking a huge infusion had better be prepared to show potential investors how it intends to use that money. The safer more conservative route is to outline some clear milestones the company is hoping to meet, and then basing its target amount on reaching those. In addition to avoiding potential embarrassment or disaster during the fundraising process, this will signal to investors that the company leaders recognize the importance of building a business in as frugal a manner as possible. Obviously, this could bode very well for the company’s profitability down the road.


Surplus or Bootstrap

Again, a company may have understandable reasons for wanting to raise as much money as possible, but it is crucial to determine how the money will be allocated. If there are investors willing to furnish more than is actually necessary to grow the business, then it may work out to carry that surplus. However, savvy investors will likely be hesitant to fork over cash that is just going to sit in someone else’s hands when they could have it sit in their own accounts, likely earning a lot more interest. In addition, there is a lot to be said for starting a business by bootstrapping and to only raise what is absolutely needed to bridge any gaps in the budget.


More Money, More Control

Another important thing to consider before accepting a huge investment is all of the restrictions that are likely to come along with the money. As recently discussed, investors have all sorts of ways to maintain control of the enterprise in order to protect the value of their investment. Thus, the more money that a company accepts, the more likely it is that the investors offering that cash are going to not only expect, but perhaps even demand, some serious control provisions and protective measures.


Large Investment, Serious Pressure

In addition to those control provisions, there is likely to be an overall increased amount of pressure to deliver and to do so quickly when there are investors with a lot of skin in the game. The investors may want a position on the board to drive the decision-making process, or they may demand that the founders hire certain personnel or invest in certain technology. The reality is that money is power, so companies hoping to receive a large investment should also expect to feel some serious pressure.


Slow and Steady

Most people, but especially excited entrepreneurs, are impatient and anxious to see immediate results, whether embarking on a new fitness regimen or building a business from the ground up. And, there is no denying that having money opens up a lot of doors and opportunities. Because of this, most startup leaders are eager to hit the ground at warp speed, which usually means engaging in a massive fundraising round as early as possible. This approach has certainly worked for some companies, and Silicon Valley is brimming with laudable success stories. However, these stories are likely the exception and not the rule.


For every company that has soared to success, there are probably 100 that have failed so badly that their founders had to wipe out their life savings and over-mortgage their homes. Many failed entrepreneurs would likely admit that they should have taken a slow and steady approach. When things are happening at lightspeed, it is a lot harder to make corrections before hurtling to demise. But, by taking time to really think things through and gradually figuring out what works and what does not, leaders can always pick up the pace later, when appropriate.

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