Startups · Entrepreneurs

Should I raise more than the capital I need?

Marian Melnychuk Senior .Net Developer – Upwork

September 19th, 2016

Got my numbers together and have a good idea of what it would require to keep the lights on for the next 12 months of runway. I think I can raise more than such amount but not sure if that would be a good idea. What do you think?
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Michael Barnathan

September 19th, 2016

Hofstadter's Law: It always takes longer than you expect, even when you take into account Hofstadter's Law.

So it is with development and entrepreneurship generally. Assume things won't go as planned - you'll want to have extra cash (a) foremost so you don't start making decisions out of panic, (b) so you can seize on unexpected growth opportunities without having to raise another round, and (c) because running out of money too soon is a red flag, as Sal mentions.

Christopher Jaynes Founder & CTO at Mersive Technologies

September 19th, 2016

Sal's correct.  It's a tradeoff, but if your raising from traditional VCs, your can always structure a deal that includes additional traunches of cash if needed.  It's fairly common to negotiate an initial investment that preserves your equity and covers what you think you need while making sure your investor will be there if additional capital is needed.  Additional investment can be more expensive (i.e. a bridge loan with additional warrants), but you can typically negotiate so you know what your getting into.  

This is one of the main reasons you should be seeking VC funding from established investors and know where they are in their investment cycle.

Jeffrey Gross Managing Member of intellectual property firm, Entrepreneur, P/T Musician

September 19th, 2016

If you raise more, you'll give up more equity - bottom line. Also investors don't want to invest in a "bridge to nowhere" - if you fail, which is vexing to consider but always possible, the investor is out more $$ than would have been necessary.

Michael Barnathan

September 19th, 2016

100% of nothing is zero. Balance the equity you're giving up by taking more funding against the risk that the business folds if inadequately capitalized. What is the standard deviation you can tolerate on those financials?

I've seen many businesses fail because they were too stingy with equity - to their founding team, investors, or occasionally employees. I haven't seen too many fail because they raised too much (although I have seen some founders burnt out because they took participating preferred / didn't understand anything they were signing except the raw valuation)

John Currie ITERATE Ventures - Accelerating Science & Technology Ventures www.iterateventures.com

September 22nd, 2016

Marion,

I know your basic question is about "taking more money".  But your goal of "keeping the lights on" does not offer anything compelling to an investor.  You need to put your burn rate in the context of market accomplishments & traction. How much more business will you do with more money?

If you have truly found Product-Market fit, then you must have some paying customers and/or paid trial betas. Use those wins to leverage bigger wins. The Market usually has the answers faster than Investors. Smart investors will see your behavior, note your wins, and start making offers.  If you need to raise money, it should be small amount to run a marketing campaign in _____ space, which will produce x amount of profit.

Sal Magnone Co Founder, Chief Architect at Angry Robot Labs, LLC.

September 19th, 2016

Generally, Yes. There should be a balance between saving equity (which, if all goes well, is worth more the longer you hold it and represents control) and reasonably hedging against unforeseeable circumstances. Additionally, appearing short of cash, including a buffer, will invite more aggressive terms from investors and will be seen as a red flag.

Gulf Cloud First Cloud Service Provider Company in the Arabian Gulf

September 19th, 2016

Like Mr. Magnone said. " Yes, without sacrificing equity"

For Me @ Gulf Cloud I managed my 12 months runway with soft loans and we are about to break even, Now I thinking about investors for big expansion.

Joe Albano, PhD Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.

September 19th, 2016

You really haven't told us enough to provide any meaningful feedback: 
  • What stage is your startup / business at? 
  • Who is all of this money coming from? 
  • Is the money in exchange for equity, warrants, debt, etc.? 
  • What are your investor's expectations?

C. Moehle Seeking opportunity to deliver Sales | Marketing | Biz Dev | Channel Mgmt | for early/mid stage Company

September 19th, 2016

Unless you have already applied the "will take twice as long and twice as much money" principle, I wouldn't hesitate.  You will always make your best deal the first time around-- Mike

Rod Abbamonte Co Founder at STARTREK / @startupHunter / @startupWay / @CoFounderFound / @GOcapital / @startupClub / @lastminute

September 20th, 2016

Design what you will need, prepare a detailed financial plan and invest just what is absolutely necessary. A reserve fund is alway necessary be considered.