Just like in everyday life, money doesn’t solve all your problems when you’re an entrepreneur. Sure, not having enough can make it hard. It can even make it seem impossible to get your business started and keep it growing, especially if your company is in a capital intensive market such as healthcare or clean tech. However, having too much can be more detrimental at times.
A VentureBeat article hit on that exact point last week, outlining some of the business risks of raising more money than you need. Here’s what the author noted:
- The more money a founder raises, the more he or she need to return to investors.
- Easy money can take entrepreneurs off-track.
- Some companies aren’t yet ready for the growth influx that follows a hefty capital injection.
These aren’t risks to take lightly. There are plenty of examples of companies that have failed shortly after raising tons of money. There’s a perfect example in a company called Webvan, which raised $800 million from VCs before filing bankruptcy. If you read the article you’ll notice the first subhead reads, “Too much money, too early.”
It’s clear that raising as much as you can as quickly as you can is never an appropriate funding strategy. But how much is enough? The author of Less is more: Resist the urge to raise too much capital cites some tips and tools to help you decide what approach and amount is right for your business.
Do you have a story about raising too much money? Share it below in the comments and on Twitter using #TopOfMind.
Less is more: Resist the urge to raise too much capital
It is normal to think you need to raise as much capital as possible. When you have more capital, the thought is that you can jump on new opportunities and get to market faster. However, there is a risk of raising too much capital and here is why.
- The more you raise, the more you need to return to investors.
- Easy money can take you off-track.
- Not ready for growth.
Read more to find out how much capital is the right amount of capital to raise.
The Lock Has Evolved: Open Doors With Your Phone
Why are old-fashioned keys still used to unlock your door at home? We certainly don’t use them for new cars or for a nights stay at a hotel. There is now a different approach: smart home deadbolts. There are a lot of what-ifs to this solution. For instance your phone could die and you might be stuck sleeping outside. There are two companies offering this solution: $250 August and $220 Kwikset Kevo.
What all Entrepreneurs Need to Know About Prorata Rights
Here is what you need to know.
- Why investors care about prorata rights.
- Do investors always take up their prorata rights in later rounds?
- Why prorata rights used to be less of a big deal to angels?
- Why prorata rights are becoming a bigger deal to angels?
- Why prorata rights are now sought out by LPs?
- Why prorata rights are being guarded by VCs?
- The prorata fight – between the rounds.
- What a second, what about the entrepreneurs? Aren’t they getting screwed?
- VC approaches to prorata rights & how we’re solving this at Upfront Ventures.
Best Advice I Ever Got: Build a Business for Your Life
Matt Wilson, CEO of Under30Experiences, started a company in his apartment in New York. He was in Iceland looking out at the Eyjafjallajkull volcano wondering how he had become so out of touch with the world around him. This is why he decided to start Under30Experiences. Here is some of the best advice he has received.
- It’s a big world out there.
- Be cool with being different.
- Start a business for life.
Useful Stats: Business Survival Rate by State, 2003-2013
According to the Bureau of Labor Statistics (BLS), California had the highest survival rate between 2003 and 2013. The Northern Plains faired well too. In 2003, 610,082 businesses were established in the US. Of these businesses, 226,809 (37.17%) survived until 2013. Other states with strong survival rates were: North Dakota (47.1%), South Dakota (44.6%) and Washington (44%).