Raise Way More Funding Than You Need
[This article is based on some assumptions: you have a business worth funding; you have the motivation that inspires investment; that you have access to a “reasonable” pool of funding.]
About 4 years ago, a good friend of mine asked me to help her figure out if and how she could raise some funding for her business. She didn’t have a “tech startup” per say, rather she was a UX/UI designer, and a very good one.
She wanted to raise money because she was starting to hire people under her as contractors to help her with her workload, which was designing graphics and interfaces for startups in San Francisco. The company has nice revenue growth, some proprietary software tools (CSS, Javascript) and a bit of cash in the bank. This is not a vanity business.
I said “Sure, that could be fundable. How much are you raising?” She just gave me a puzzled look.
People wonder if it was pretentious to assume a design firm could be fundable. I tell them absolutely not – if gourmet coffee is fundable, then of course digital design was and can be a fundable, scalable, “productizable” business. The real question: Is it scalable? If is that what you want – a bigger company? Investors? why? are you ready???
Those questions caused her to go away for a few months; that happens a lot when I ask questions. She eventually came back with some great answers to my questions. My only feedback was to double the ask; ask for twice the amount she felt she needed. That kind of shocked her again. Good.
Why ask for more? So many reasons. Costs are hardly ever lower than you estimate. It’s never good to run out of money, as we all know. Also, real investors know when you’re not estimating your costs correctly and that turns them off. Believe in yourself.
Often fundable founders don’t agree with me on this point. They say…
- I don’t want to give up more equity
- I can do it with less
- Investors will say “no” if I ask for too much.
And here are my responses:
- Fight for a higher valuation, use outside experts
- Over estimate all costs
- Be bold
If you wait until you’re running out of money it will cost you more. Also, you can possibly sell a little bit of your own stock to investors, give yourself a six figure bonus.
