Raising Venture Capital: Biggest Mistakes by Founders

How do you balance between raising too much versus too little? For such a fast-growing business, how do you project the business and then understand how much to raise?

One thing I have realized is that most of the businesses fail because they don’t have enough capital. Although, yes, raising too much capital will dilute yourself and your other shareholders. But, ultimately, it’s better to have enough capital as opposed to running out of capital. The way to think about it is, yes, you want to have enough capital to run your business for at least the next 12 to 18 months, when you have the path to profitability.

You need to run different scenarios. One is your more optimistic scenario, then a realistic scenario and, finally, a conservative scenario. You want to raise capital in such a way that, in your conservative scenario, with your growth, with higher expenses and higher losses, you still have enough runway to run your business, in the time you turn to profitability. I’m talking more about in the late stage, that is how you would think about it. You need to have enough runway for at least 12 to 18 months, to turn to profitability, in your conservative scenario.

I think that should be the first thing in your mind, for any other CFOs. Yes, you want to have financial discipline, but you also want to have enough capital. If they have enough capital, then they can, potentially, focus much more on executing the business strategy, rather than being worried about running out of cash.