I am not talking about whether you should start up. I am assuming you have already founded your dream venture. The dilemma now is “should I raise funding for my venture? Is this the right time?”
Having founded LetsVenture, our core business is to identify startups that are ready to raise angel funding and connect them to relevant investors. Having worked with more than 500 founders, I also discovered that founders are not sure when they should raise capital, how much to raise and from whom? I created a simple cheat sheet for founders that I thought would be a great way to decide on some of the common questions that come up.
Of course, with a disclaimer that not every decision in life can be parameterized – there are always corner cases and outliers. 🙂
Raising angel investment means diluting equity in lieu of money being invested. It means that you are now accountable for your work, your actions and your decisions to a group of investors, who have chosen to invest their personal money to support your dream. It means that you have stepped onto a treadmill, where the speed at times is controlled by people outside the day-to-day business and where you don’t have the option to step off the treadmill. With every additional round of funding, the speed increases. This is the downside.
On the upside, raising angel investment also means you have people who are vested in your business and can be a sounding board when you are faced with challenges. It does build discipline into an early stage venture. I personally believe that as founders, if you are able to offer good governance and periodic business updates, your board will be better engaged and investors will be willing to provide support as needed. This is the basic thumb rule of working with investors – Don’t surprise them with bad information.
Now to the Question: Why should I raise funding for my venture?
Answering this question honestly will help you design your fundraising strategy well. If your answers are in any way external to you and your business, you need to give this a serious thought.
- My friend raised angel so I think I can too.
- I will get press coverage and more visibility for my startup.
- I can take a better salary and be more comfortable.
- Let me take the money now and decide later how to spend it.
- Let me use the money to experiment my idea
If you answered yes to any of the above or agreed to it, re-think why you are looking for funding. This is probably the single most important decision you will make for your startup as a founder.
When you should raise angel funding:
- This is the only venture you are committed to and you are committed to this for the next 5-10 years of your life.
- You are willing to run the marathon and know personally you have the belief to tide every down cycle as much as leverage every up cycle.
- This venture is the only Plan A in your life right now. There is no Plan B. I believe entrepreneurs cannot have Plan B. You will need to take every action to make Plan A work.
- You know the milestones that will be achieved with the funding to validate/build the business
- You understand your business is tech scalable and has the probability to return multifold returns to your investors
- You will consider your investors as your partners in your journey towards building a great company. You will seek help when needed, and take advice when you don’t have all the answers.
At the end, every investor knows that 90% of startups fail. But that does not mean founders raise money for the wrong reasons. I believe funding is not a goal by itself – it is an enabler to the goal. And the goal needs to be set clear and high!
This post was originally written by Shanti Mohan. You can visit @shantimohan for all her experience with fundraising and investing.