When To Ask For More Money From Your Startup’s Investors
The short answer is now. The correct answer is a little more nuanced.
Ask any veteran entrepreneur and they’ll tell you that raising money for your startup is exactly like running on a treadmill — only the treadmill is set to automatically increase in speed with the close of every new round of funding. And there’s no pause button, just that ripcord you can pull one time to shut the whole thing down.
Oh, and you don’t get to pull that ripcord, your investors are the only ones with access to it.
So a word to the wise founder: You should never think of fundraising in terms of the single lump sum of money that you’re asking for right now. You definitely need to think of funding as one raise at a time. When you close this round, you go directly to planning the next round.
Of course, it’s bad form to start negotiations on the next term sheet the minute the new cash is wired to your bank account. Your investors will want to see that money put to work and they’ll also want to measure the results. In fact, they’ll be watching very closely, and hammering you about it at least once a month in board meetings.
All this means you need a plan for your first raise that builds the story for your next raise, which lays the groundwork for the raise after that, and onwards until you can step off that treadmill safely.
Let’s create that plan.
Catalyst and Pivot
A catalyst is an event that can be exploited to create a major opportunity for a business. A pivot is a wholesale change in a company’s business model, one that puts the company into a position to capitalize on that catalyst.
The simple answer to the question “When should you ask investors for more money?” is based on discovering catalysts — which the startup has no control over — and establishing pivots — the strategy for which remains undefined until the catalyst is discovered.
So yeah, it all sounds like magic and mirrors, and it kind of is. It’s terribly difficult to plan for moments you can’t control and take actions you can’t define.