When is the best time to raise money?

With the current world crisis, startup funding has become more and more challenging, hence the question: when is the best time to raise money? has become a hot potato question.

To make sure that we’re on the same wavelength, please keep in mind that, on one hand, fundraising is not an easy process, it requires an arm and a leg to conclude a deal. And on the other hand, startup funding is a financial instrument that supports the startups activities and operations, it’s not THE purpose of your startup journey.

So, when building your startup idea from the ground up, don’t jump on the bandwagon after reading a startup funding announcement on social media!

Don’t put the cart before the horse

Before trying to find investors, make sure that you have checked the eight elements in the list below:

1. Your UNIQUE value proposition is defined.

2. Your market is well defined and performance measurements are set :?

• For whom do you offer the product/service??
• How much target customers do you have for the first milestone [set measurable indicators]?
• How much are they willing to pay??
• How will you reach out to the targeted customers??
• How will they pay for your product/service?

3. The first milestone is checked:

• Have you reached the target customer number defined in the previous element ?
• Are they satisfied?

If one of the conditions above is not met, get back to the second element and redefine the first milestone measurements. The existence and satisfaction of early adopters will give you more credibility to showcase your product-market-fit validation.

4. Your business model is defined and tested.?

5. A motivated team with complementary skill sets ( soft and hard skills) is onboard.

6. A giant pool of potential customers is targeted.

7. A strategy for how to invest the money once you get the funding is defined.

8. The potential risk of the delays that could take the fundraising process is assessed.

If the fundraising process takes more time than what is planned, what would be your mitigation plan? Are you planning to put all your time and resources on the fundraising process??

Don't put all your eggs in one basket ??

This list is not exclusive, and there may be further elements to check depending on the sector, target customer, ecosystem maturity, etc.

If all the elements of the list above are checked and you consider that you just need money to take your startup to the next level, Take it off !?

If you still not sure whether your startup is fundraisable or not, consider the two perspectives below ??

Last 2 things to consider before knocking a VC’s door

Is it worth it?

Take a moment and consider what you give up for that money!

Selling shares will dilute the number of shares you own. Startup dilution is a concern that you need to pay attention to. It does not only affect your financial return it? also have big implications on control of your company.

In the short and medium run, it is neither efficient nor effective to give up your time for the hustle and bustle of managing complex governance structure and potentially shareholder conflicts.

Tip:

if you are still in an early stage, try to keep the governance structure as simple as you can! It can be a huge distraction. You can quickly get stuck into calling coffees and dinners that can take up most of your workday which takes you away from your most important job: growing your startup.

In the long run, if founders find themselves with less than half of the controlling shares, big decisions at the startup become much more complex.

With this being said, if you have all the elements mentioned in the list above it might be worth it to give off shares in your startup for getting a new financial partner on board to support the growth of your startup.?

Put yourself in a VC shoes

If your startup is not ready to raise money, there's no reason to spend time convincing investors to invest in it !

Internally you might be looking at your current burn rate and plan on raising enough money to cover another year or two of expenses.

But, if you were a VC, would you get excited to invest in a business that plans on stagnating between rounds?

Focus on the growth of other considerations that influence how much money you would raise. These could be related to the cost of capital expenditures or investments you plan to make in the sector/industry where you work.

Prepare your benchmarks and answer the four questions below reasonably and objectively:

1. Have you found something that's working and having extra cash in the bank will help you scale the startup faster?

2. How much money do you need to grow aggressively and hit a new major milestone for the startup ?

3. What will it cost to develop a new product?

4. How much a sales and marketing push will cost?

Ideally money invested in user acquisition will turn into profits quickly enough that you won't need to raise a huge round of financing to hit your growth targets.

Let's wrap up !

While looking at startup funding announcements, as a startup founder you can feel pressure to raise money and forget that fundraising involves raising capital in exchange for a portion of the startup's equity and once done at the wrong time it could be harmful to your startup!

Also, these exhilarating announcements create a confusion between fundraising success and THE startup success. Keep in mind, raising money does not make your startup successful, rapid growth is what makes it successful.

So, if you want to steer your Startup toward its AHA moment, focus on building a great solution that answers a need, brings value to its customers and makes profit. All that in hand, investors will have interest in being your financial partners.