9 Factors You Must Weigh Before Raising Money for Your Business
As a founder, you may be tempted to jump the gun on raising money to fund your business, but it’s worth considering a few things first before you go knocking on investors’ doors. For an emerging company, timing truly is everything, and your decision on when and how to raise the money could spell out success or disaster, depending on how you formulate your strategy.
Nine entrepreneurs from Young Entrepreneur Council (YEC) share the variables you must take into account before going out to raise a round of funding for your business.
1. Your valuation.
There are so many different factors that can change the valuation of your company. Try to build up your company value as much as possible before going out to raise funds. Once you feel that you’ve done everything possible to maximize your positioning, then go out and raise.–Ayelet Noff, Blonde 2.0
2. Your goals for the funds.
While considering a raise, be absolutely clear about why you need the money. You should be able to articulate exactly where you are now, where you want to go and how the money will help you get there. Be as detailed as possible with your “use of proceeds” and weave the financial resources into your roadmap and strategy. You must be able to share this same story to investors and substantiate it.–Andrew Thomas, SkyBell Video Doorbell
3. Whether you need to raise funding.
First, ask if you really want to give up some control over the direction and operations of your firm. Bootstrapping LexION Capital was not easy, but the benefits were well worth it. I’d encourage any owner to do the same: if you can self-fund, you don’t face the prospect of limiting your dream to the time frame and strategy your investors want. You retain total ownership of your firm and your vision.–Elle Kaplan, LexION Capital
4. When you’ll need funding.
Assuming that you’ve decided that you need the money, you should spend some time determining how quickly you’ll need it. Venture money (if your company is qualified) takes a long time, and often grant money takes even longer. Bank loans or friends and family investments can take much less time. Obviously there are other considerations, like how much of your company you’re willing to give up, or if you’re willing to take on debt.–Kofi Kankam, Admit.me
5. What you’ll use it for.
By far the most important factor to consider before deciding to raise money for your business is what you’ll use it for. The proper way to evaluate your needs is by creating a use of proceeds, which is an analysis of your cash needs over a specific period of time (typically 24 months) to accomplish your goals. Goals should focus on growth such as hiring, advertising and software development.–Obinna Ekezie, Wakanow.com
Is it the right time? Often, you only get one chance to impress investors. Ask yourself, “Does the business need money at this time?” You don’t want to try to raise funds until it is necessary for the success of your business. You also need to make sure that you have your business in order, and you have to be prepared for the scrutiny you will face from investors.–Chuck Cohn, Varsity Tutors
7. Product-market fit.
Raise money to scale what you are already doing that is working. If you don’t have product-market fit, do not raise money — you’ll only anger potential investors, so use your own money to figure that out. Work with people you trust, but don’t give more than 10 percent of your company away during this phase. If you do choose to raise money, raise less than $200,000. Without market fit, you’re doomed.–Adam Root, SocialCentiv
8. How much money you need.
With unicorns abounding today, the temptation to raise big money is huge. But over-raising is even worse than under-raising, as you can always raise more, but you can’t “divorce” your existing investors or terms. Make sure you are only raising enough for a well-conceived, thoughtful and detailed strategy.–Afif Khoury, SOCi, Inc
9. Your audience.
If you don’t understand your audience, you won’t be able to build a sustainable business. Before you look into raising money for your business concept, be sure that your product and/or service is really solving the problem that your audience has in an efficient and cost-effective way. You need to be secure in the fact that your audience will buy and love what your business is offering.