When to Raise Capital
Transcript
Hi, I got a lot of great feedback from last week's video on crossing the chasm, how to get across that valley of death.
And one of the biggest questions that I got multiple times was how do you decide how much money to raise, if to raise at all?
That's actually a really important question. Now the real answer to that comes in a detailed financial model.
And I love talking about financial models, I just can't do it in the three minutes we have here.
So instead of going into those details, first, I want to talk about how I think about it.
So let's go to the whiteboard.
Let's say this is time and here is dollars that your company had.
And I'm going to put you right here, early stage.
You have a bunch of expenses and your expenses are actually going to be climbing and going up over time.
might look something like this.
You hopefully have revenue
and your revenue is going to be climbing
and approaching the expenses.
The best time to raise money
is when you're within spitting distance of break even.
Once you cross that line,
you have more revenue than you have expenses.
You're cashflow positive.
At that point, you as the entrepreneur
are in control of your own destiny.
You don't have to raise any more money,
but you may choose to
because it will allow you to grow faster.
So the story when you're raising money in here
is not one of desperation, like it was back here.
It's one of, you know what, investor?
I don't need your stinking money
because without it, I'm going to continue on my trajectory
and I'm going to do just fine.
But if you're willing to invest,
we can together change the trajectory
of this business dramatically.
And it's this delta, the value that is created
by the incremental capital is what you're paying for and why i'm willing to give up a portion of
the company to get that bigger outcome and so when people ask me how much money should i raise
the answer isn't a dollar amount the answer is it ultimately is a dollar amount but the answer isn't
a dollar amount it's time how much time do you need to get to within spitting distance of break
even so that you can be in control of your negotiation in the next fundraise because one
of the things that entrepreneurs usually get wrong is they're trying to optimize for the current
fundraise when in actuality the best entrepreneurs are playing the game like they play a game of chess
they're optimizing for the next move maybe they're even optimizing for two or three moves ahead
you should be optimizing for the next fundraise or maybe the subsequent fundraise
that's how a really good entrepreneur wins
In episode two of MATH 101, Troy digs into when the best time to raise capital for your young business is. In entrepreneurship, timing is everything, and it’s more of an art than a science. This video should start to demystify where in the process you should think of raising money, enabling you to play chess while your competition is playing checkers.
Originally published on the MATH Venture Partners blog.