Friday 24 September 2010

Are you ready to fundraise?

Quite a few startups want to fundraise just for the heck of it. I think that's wrong. I partly blame the whole social networks phenomena, when it's hip to receive funding.

However business is supposed to be a rational thing. There is a set of criteria, where one can decide if they want/need to fundraise or not:
- Can added funds be significantly leveraged? e.g can adding 2 engineers, or 2 sales people to the team at least quadruple revenue, or adoption. Can you prove it, or it's a hunch? Do you have 1 sales guy that already does X and two more will do X*3?
- Can adding the investors really help you with finding the right answers, connections? In other words, are these investors the right ones, or are they just bringing money and you already know everything?
- Are you willing to give up your company for fame and wealth? It's very simple, having investors is great, if you sort this one out in your head: It's not your company anymore! Typically after normal fundraising process you give up around 30% on every proper rounds and by the time you get to an exit, founders hold less than 20% and that's without liquidation preference and other legal mess. It can still be a fun ride though:)
- Do you want to have a lifestyle business or make it big? That seems obvious but can significantly change your preferences and your decision. Lifestyle business is safer, slower more secure, and you don't fundraise for it. Venture type business can be big, very risky and you want to fundraise for it.

What you want to do?

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