Startup CEO: A Field Guide to Scaling Up Your Business, + Website

CHAPTER TWENTY-ONE

WHEN AND HOW TO RAISE MONEY

The answer to both of these questions, of course, depends on the stage of your business. The general rule is that the best time to start looking for money is when you don't need it—but not so early that a potential investor can watch your business closely for too long a period of time before the deal. All startups have hiccups along the way and many investors are easily spooked by reality.

WHEN TO START LOOKING FOR MONEY

If you're looking for seed capital, you may not have too many options in terms of timing but it's best to do everything you can to keep bootstrapping things along with consulting or one-off projects. Why? At the proof-of-concept stage, the value of your company increases sharply with every new customer or new release, so it's best not to take capital too early—as long as you can live without it.

If you have a business that's generating real customer revenue, with a cash balance and a predictable burn rate and you have never taken in institutional capital before, you should probably start talking to VCs six months before you run out of cash. While you don't want VCs to anchor a valuation in their mind too early, the reality is that it takes time to get these your first institutional deal done. Furthermore, you definitely want to talk to several different firms, so a little more lead time is better. This is especially true if your window of time interferes with August or the holiday season, when not much new business ...