The Balance of Raising Capital
In the entrepreneur world, everyone loves talking about raising capital. It’s the creme de la creme of an entrepreneur’s career. Or so the outsider thinks.
Shows like Shark Tank and Dragons Den glorify this process. Get as much out of the investor as possible. But make sure it’s a fair deal. But always get as much cash as you can for the smallest amount of equity.
This is the thinking that’s translated time and time again. Except, you shouldn’t always get as much cash as you can. There’s a delicate balance between how much cash to swap for equity.
You don’t want gobs of cash to throw at your problems when you really need creativity and problem solving restraints to give you an edge in your industry.
Raising just enough cash to get by and allowing yourself creative constraints is the balance to strive for when you’re raising an early round of funding.
If an early startup has too much cash, then they often throw equity at their problems, rather than innovating around them.
This kind of mindset allows you to find more efficient and effective ways to solve industry problems that your competitors have overlooked or been unable to solve.
(HT to this video by the Kauffman Founders School)
(photo via greenpeace switzerland)
Posted on March 10, 2016
by Tim & Tommy