2 Reasons You Should Only Raise What You Need

How much money should you raise for your company?

When it comes to fundraising advice, everyone’s got their own opinion. You never know when the economy will go south, some will say, or raising lots of money will elevate your credibility and create momentum for the future.

The one I hear most often is raise as much as you can, and honestly, I think this is bad advice.

It sounds counterintuitive, but when it comes to fundraising, I firmly believe that more doesn’t necessarily mean better. Having cash on hand might get you there faster because it will give you the ability to hire fast. But there’s one thing money can’t buy: Product-market fit.

Without that fit firmly in place, you could be sitting on a Scrooge McDuck-sized reserve and it wouldn’t make a difference.

Rather than making a grab for all the cash you can, I recommend this: Only raise what you need.

Why is that the right move? Here are two simple reasons:

Greater Control

The money you raise is going to come with strings. More often than not, accepting it will involve offering some board seats in return, meaning that you’ll also be handing over some control of your company.

As check sizes increase, more people will have to get involved. There are more cooks in the kitchen—more people to answer to, more interests to consider.

Of course you’re going to have additional people sitting on your board of directors no matter what, but your goal should be to maintain control for as long as possible. This control is especially critical in the seed and Series A rounds because you’ll be able to control your destiny without asking the board to approve every decision.

More Realistic Valuations

The higher your valuation, the more pressure you’ll have to manufacture growth. You’ll have to step into the shoes you’ve chosen and get there quickly.

The old rule on raising was to create two years of runway for your firm,  but I’m now seeing founders accepting deals that give them three or five years’ worth. In my opinion, those deals don’t do much for the company other than force it to grow—even if the conditions aren’t right.

It’s much healthier to focus on finding PMF and growing into your valuation. Emphasizing PMF prepares you for the inevitable pivots that are going to occur as you find your home in the market. You’ll be more tuned in to additional verticals or expanding your sales footprint without having to worry about answering to investors seeking returns.

If you don’t grow into your valuation, you might be diluted by future down rounds. At that point, all of the options you’ve offered to employees will be underwater. The more you raise, the harder it is to maintain that valuation, and in turn, retain the value of the shareholders’ options. 

Conclusion

It’s easy to get swept up in the wave of fundraising, but it can often become a distraction. More does not always mean better for the health of your company.

Instead, focus on the things that matter most. There are PLENTY of examples of great companies who have done a lot with a little. Get disciplined with your budgeting, stick to your plan, and above all, remember: healthy companies will ALWAYS have access to additional capital.