Sun, Apr 05, 2015
In today’s funding climate (at least here in Silicon Valley) it sometimes feels like money comes easy and for free. The news are full of startups raising millions of dollars of pre-seed funding before they even have a product. Or companies raising tens or even hundreds of millions of dollars in funding a mere year or two after inception.
That’s all nice and happy — but don’t forget that all that money comes with an expectation. One which aims high: A venture fund (or seed fund / angel investor) looks for 5–10x return on her capital. At least.
And with that comes the dark side of fundraising. As long as the sun shines on your startup, life is good. But beware the moment the sky gets cloudy. When you’re behind your product milestones, or the product/market fit doesn’t work out as you hoped for, or your customer acquisition cost skyrocket. Great investors keep a cool head and will work with you through tough times. Average investors will panic and make your life hell.
And there are way more average investors than great ones.
What this means for you is: When you raise capital don’t get swept away in the fever to raise ever more money. The more you raise, the higher the expectation for returns will be. Seek out and work with great investors who have a track record supporting their companies when the going gets tough. Not all money is equal and money from an experienced investor is worth way more than just dollars from an angel investor who wants to play in the startup lottery. Focus on building a strong relationship with your investors. It will help you tremendously in bad times.