Today I had coffee with an old friend of mine who happens to be one of the smartest and most successful investors I know. The reason why he is so successful is that he has very clear investment criteria: He only invests into companies which generate revenue already; which have a clear path to positive cash-flow; where he knows the other investors; where he can take an active role in helping and guiding the company and — this is the interesting piece — where the current round of investors is able and willing to finance the next round as well.
The last point is crucial: By now you might have heard about the “Series A-Crunch” — the Silicon Valley meme which describes the fact that more and more companies get angel and seed funding but essentially the same amount of companies get Series A funding (thus leaving an increasing number of companies without follow-on funding). You surely also have heard (or even felt) how much pain and effort fund raising is — time and energy which is taken away from you building your company.
Imagine a scenario where you don’t need to worry about this…
Making sure that you have your follow-on investment secured frees you from all these shackles. If you do okay you can focus on building your company. If you do excellent you can always turn to the market and see if you can get better terms.
This is very doable. My friend is not an outlier. I heard similar stories from a bunch of smart investors. It is your job as a founder to seek out the right investors for your company (not all money is equal) and negotiate the right terms.