Raise capital before you need to raise capital. When you are ready to raise capital don’t raise capital. This is the best way to raise capital!
I like the idea of clear advice, but sometimes clear advice can sound confusing! 🙂
Here’s the scenario: you’ve raised your Angel/Seed round, you have some runway and you’re thinking about the timing of your A round.
I was on a Zoom with a technical founder this week who I believe is building a big (and I mean a big) company. He’s got a massive idea, traction, great founder-market-fit and all that in a space that’s hot. Without doubt he’s going to be able to raise a $10- $20M A round. He has enough cash ($3M Seed) to get to the end of 2021. I like this guy!
He asked me a really simple question. “If you were me, what would you do next?”
Here’s what I said….
1) Raise capital before you need to raise capital.
Start meeting VCs now. Raising capital nearly always takes longer than you think. The primary reason for this is that the VCs will want to get to know you in a meaningful way, and that takes time. You’re not going to get a check on the first date!
It may take 6 months to build a relationship for the VC to get to know you, understand your business and track performance. Taking the time pressure off this process is tremendously beneficial to both parties.
2) When you’re ready to raise capital, don’t raise capital.
Similarly to point 1, if you are talking to investors early you can talk to them about your business, about their firm, about the space, all in a scenario where you’re NOT raising capital. You can start the meeting off by saying you’re not raising, but learning about the VC and their focus. If you are good and the business is good you’ll find that maybe you’re not the one chasing! This is the best way to get to know which investors you like, get multiple offers and a good deal. There’s also much less pressure on you.
3) The best way to raise capital?
See point 1!