Should I fund raise for my business?

startup funding should I raise money for my business

There is no one size fits all here, all businesses, stage of evolution, markets and needs are different as are the needs and goals of the founders and owners. Here we are going to take a very general look at the subject of fund raising and look at the pros and cons to help you think about your own business and get some idea as to what could be right for you. This article is not about the types of funding out there or how to get it, it´s about timing and when you should think about going out there to look for outside funds.

The first thing to think about is why you are thinking about fund raising, do you really need the extra cash? If you have already launched your product or service and are seeing results and growth you could consider fund raising to accelerate that growth, open more outlets or hire a bigger team or expand into a new market as a few examples.

Fund raising is a time consuming and energy sapping business. It comes with highs and lows and all the time you are forced to take your eye off the ball in order to go out and secure funding. If you have a big enough team and sufficient resources it´s maybe not so bad but in most small companies with a single founder or a few founders who are already overstretched fund raising can really sap your energy and resources for perhaps a zero gain or worse make a mistake and end up with the wrong funding and partners and have to pay the costs further up the road.

Let´s here look at an example, perhaps a SAAS (Software As A Service) startup with a single founder or a couple of founders and maybe a very small team boot strapping their way forward. It´s all hands on deck and all energy is going towards creating the platform and getting it ready for the first users or the first viable version is live and it´s now time to go out and get paying customers.

At this exact stage you are faced with two clear choices, you could put your energy into getting paying customers and thereby start to generate income and users or you put some of your available energy into raising funds. The issue with the latter is that you will inevitably have a harder job raising funding if you cannot show enough traction and if you do find investors who have an appetite for more risk you will have to give away more equity. If you do manage this you have the advantage of having another or more stake holders who can maybe open doors or provide advice and the benefit of experience and another set of eyes which can be priceless however on the flip side you could lose some control and cannot do things quite as you like, this can be a good thing or a bad thing.

If you do not take the fund raising route just yet and continue to bootstrap assuming you have enough resources to stay alive you can give everything you have to getting your project off the ground and gain that essential startup traction. The advantage here is that all your effort is going towards getting users / customers on board and hopefully even generating some income. Depending on your business setup and service offered you could theoretically grow organically for a while without the need for external funding. To me this is the holy grail. You end up in a situation where you can prove the need for your product or service, iron out bugs, stay lean and grow your financial needs steadily and therefore understand the financial mechanics of your business a whole lot better. What I mean by this is that you think about every cent you spend, every person you hire or take on board when it´s your own money and limited in supply. If you suddenly get a sizeable investment you have an influx of cash and may make mistakes on where you spend it whereas if you grow a little longer with your own resources you get a better feel for how your business actually works and what you really need to sustain it and grow.

If you at this stage decide to look for external funding you should be in a much stronger bargaining position and therefore potentially have to give away less equity and depending on your business model you may be in a position where you do not ´need´ extra funding and so can be a little more relaxed in your quest for funding.

In my experience and I´m sure I am not the only one to say this, raise money when you don´t need it with the emphasis on the word need. If you are running short of cash and need cash to stay alive you will not get good terms. If you are relatively self sufficient and can continue growing albeit slowly without funding you are much more in control and can more easily choose investors and investment that will work better for you and your company.

So the takeaway from this is in my opinion, don´t go for funding too soon, focus first on your product, service, business and get that right and once you are in a strong position, raise money from a position of strength, not weakness

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