Dangers of Raising Too Much Early Money

October 17, 2014

in Fundraising

One school of thought in startup fundraising is to raise as much as you can whenever you can. The logic for this is that it is hard to raise money (especially on reasonable terms), so you should just take whatever you can get.

In a recent EO meeting, I was discussing this with other entrepreneurs who voiced dangers of raising too much money too early. They are:

  • you risk not making enough progress after the raise to show a significant enough valuation bump, and potentially may hit a down round
  • it is natural to find comfort having money in the bank account and it removes some of the fire that comes from the pressure of low cash reserves (do not underestimate this and no matter how good you are you too are susceptible to this)
  • your burn rate will likely be higher than it would otherwise be, merely because you have money in the bank. I’ve written about burn rate before.
  • you may end up with numerous clamoring investors that all have opinions and will consume a lot of your attention at a time when your primary focus should be finding product market fit and a repeatable customer acquisition model.

What are your thoughts on the dangers of raising money too early? What is you inclination: to raise as much as you can, or to raise as little as you can?

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