Increase the Odds of Getting Your Startup Funded
There are a lot of reasons why your startup might have trouble raising money. But in my experience, most of those problems are self-inflicted and can be avoided.
I’ve done almost every combination of funding path you can imagine — I’ve done pure self-funding all the way to acquisition, pure VC from the very first stages, and everything in between. There is no single path to fit every startup, but if you want to retain more control, and a greater return at exit, you should always put off raising money as long as you can.
Not only will you increase your odds of getting the money, but you’re going to get better terms. Every time.
What’s more, when I say “raise money,” I don’t just mean putting together the ubiquitous pitch deck and knocking on the digital doors of venture capital firms. I also mean angel investment, friends and family investment, even handing out equity options to co-founders and early employees.
So here are four times a startup tries to raise money too early, and how waiting will increase your odds of getting the funding you actually need.
Raise to Build the Product
If you raise money before your idea becomes reality as a fully-formed product, you’re setting yourself up to be diluted into owning almost nothing at the end. But there’s another sneaky reason to hold off raising at this point, one that most entrepreneurs miss.
It’s always preferable to hang onto 100 percent control of the idea until it’s fully formed and in an executable state on the market.
Everyone involved is going to have ideas for how to make your product and your startup better — from the General Partner at the VC firm to your grandmother. And no matter where the money comes from or how soft the pressure is, that pressure will influence you.
Sure, maybe they know better. But wait to let them give you their opinions — and they are all just opinions — until your product is generating results you can weigh those opinions against. Otherwise you’re just arguing your experience against theirs, and guess who has more? Probably them.