When should I take in angel or VC funding?

QUESTION:

My startup is making $150k a year now, and I’m wondering if it’s time to go out for angel or VC funding? How do I know the right timing? And how do I know if it’s worth bringing on investors at this point?

ANSWER:

Steve Hoffman

Steve Hoffman

by Captain Hoff

Here are my 7 rules for when to go out and raise a round:

1) Don’t waste your time trying to raise money unless you know exactly what you need it for and truly believe it will make a huge ROI for you and the investors.

2) Fund raising sucks up an enormous amount of time, and that time comes right out of your business.

3) You probably won’t even get funding unless you know in detail what you need that money for and can communicate that clearly to potential investors.

4) Only raise money if you believe it will take your business to a whole new level, thereby getting you to a place where you wouldn’t otherwise be. If you can get there by bootstrapping, that’s to your advantage.

5) Managing investors also sucks up a lot of time.  So long after you raise the money, you’re still paying for it by having to deal with your investors.

6) Lawyers are expensive, so if you’re raising a small round, a good portion of it might go toward legal fees.

7) Once you raise money, your investors will probably want to put a cap on your compensation. So if your company suddenly starts to make hefty profits, you can’t simply pay yourself more. Again, you’re paying for the investment.

I hope this helps!

Comments & Advice:
  1. Anthony says:

    This is a great post! It seems like too many people assume that they need VC funding and just straight to, “How do I get VC?” Not enough think about the implications down the road. I found another good post that I think is complimentary to this one.

    http://blog.founders42.com/blog/2013/1/17/why-would-you-want-to-raise-venture-capital-there-are-easier.html

Make Your Comment: