Raise for Outcomes, Not Headlines

0:00 Welcome back. It has never been a better time to be an entrepreneur. We are all seeing our friends raise great amounts of money at awesome valuations. It's exciting. We're reading about it in TechCrunch. This is an awesome time. I love it. But I want to share with you some secrets I've learned from watching how the best entrepreneurs execute in this frothy environment.

0:28 And the first thing that they do is they understand how much money to raise and the implications of raising too much.

0:35 I actually did a video on this a few years ago.

0:37 There's a link below and a detailed spreadsheet on the mathematics behind it so you can study it and understand it really well.

0:43 Please understand the impact of raising too much money.

0:46 Second is that the pros, the best ones, understand that with a higher valuation, especially in early stage,

0:55 there can be some unintended consequences.

0:58 And so they plan accordingly.

1:00 You see, if you have this great idea

1:01 and you go raise a bunch of money at a high valuation,

1:05 you now have some money in the bank to execute with.

1:08 And you have only that much money until your next raise.

1:12 But your next raise,

1:13 you're not going to be evaluated on the idea anymore.

1:15 You're going to be evaluated on the metrics of the business.

1:18 So you better be at the point where you can use that money

1:21 to create a business that has real metrics,

1:24 whether that's revenue or eyeballs or whatever it is, that's going to get you an investment at a

1:29 higher valuation than the post-money you just raised at. Because if your valuation is lower

1:35 than the post-money you just raised at, that's what we call a down round. And the pros avoid

1:39 down rounds. Down rounds are bad, you get diluted, and frankly, they're really hard to close. Very

1:45 few investors want to invest in something that's worth less today than it was yesterday. Avoid the

1:50 down rounds at all costs. The other thing that the really great entrepreneurs understand is what

1:56 they're signing up for. You see, if you sign up, if you raise money at a high valuation, what you're

2:02 effectively signing up for is an even higher exit because the investors only make money on the exit

2:09 and it's a multiple of what the price was when they went in. And by the way, you as the entrepreneur

2:15 Only make money on the exit.

2:17 So you should be focused on the exit, not the valuation of the round.

2:21 Right?

2:22 I did a video a couple years ago as well on managing this process,

2:27 knowing how much to raise and when to raise.

2:30 I really suggest you watch it.

2:32 It will put you in control.

2:34 So if you follow these simple guidelines,

2:36 I think you will be in a position where you will be able to grow your vision with greater certainty.

2:41 I hope this is helpful.

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