The first rule for raising money is to do it on good news—right when sales are increasing at an increasing rate. Or when a major customer signs a significant deal. Or when something happens that makes an investor think this company is about to break out.
Unfortunately, the longer you wait without significant upward news, the harder it is to get attention. It’s human nature for investors to want to buy into a fast growing future, proven by some event in the immediate past.
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That’s the rub. Raising too much too early dilutes the founder interest to unacceptable levels. So in recent years, I have counseled founders to raise enough to accelerate to a significant milestone that is over a year away, and to scale the business to find breakeven with two early rounds if possible. Once at breakeven, the rush to raise more is over, and there are far more options available. Tech businesses today can do this much more easily than a decade ago, with cheaper development costs—as one example. Another is to take in consulting work to pay some of the costs during the early stage of a company.
If you have been in business for a while and don’t have significant good news to tell, I would make a list of possible strategic investors, people or companies that would benefit from your product or service. They will be immune to the disinterest shown by financial investors.
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