It’s always the great challenge for the start up company. You have bootstrapped your way to point A. You think you have something. Now, you need to raise a little outside capital. How much should you raise?
Here is an article that talks about how to make that financial decision. It’s pretty thorough. Fred Wilson also blogged about this in a similar vein. HPA’s non-emotional advice isn’t a fixed amount per se. We agree that you should allow yourself a minimum of 12 months of funding, and if you can get to 18 while keeping your valuations good for you and your investors, do it.
Our advice is to look at corporate financing as a strategic weapon, just like you would a marketing plan or the operations of your company. Virtually every business plan has some twists and turns in it. Expecting the unexpected goes without saying. But those twists and turns eat cash flow. Be prepared for it. If you price your business for perfection your investors are going to expect perfection. Better to hit your targets and have consistent upward funding momentum.
The worst thing for a start up, and an investor is a down round. It’s not the end of the world, but unlike the John Mellencamp song it doesn’t “hurt so good” either!
Take some time and strategize your funding.