Don Dodge writes an excellent blog on technology, The Next Big Thing , but a recent post talks about how much money early stage companies should raise from investors. He references a recent post by Marc Andreessen on the same subject.
Both writers basically make the same point—raise more rather than less money. They also make three other good points:
- Calculate your capital need and then add on a healthy amount for contingencies and unforeseen events that negatively impact your business, e.g. 9/11
- Determine the amount of capital needed in order to get to the next major company milestone (product launch, business scaling etc.); don’t risk raising capital before reaching the next milestone
- Raising capital is very time consuming and a major management distraction
Over 50% of new businesses fail in the first five years and 99% of those run out of money. Many early-stage companies that I see have founders who worry more about equity dilution than raising the capital. These founders rarely raise the needed capital, raise too little money or spend all their time capital raising at the expense of business development. As Don and Marc suggest, don’t worry about dilution. Grab as much cash as you can and run………..the company.