I was catching up with an investor last week. During the conversion, I was asked “why not raise a million dollars for your startup?”
We’re currently working on a very small seed round. The goal is to use those funds to launch the product and find the first 50 successful customers.
But, my co-founder and I are repeat entrepreneurs. Why not go bigger and faster this time by raising more money?
Right now, we’re not raising that much money for a few reasons:
1) We don’t know how big our opportunity is. Is it $2 million? $10 million? $100 million? If it’s say, under $5 million, raising a million bucks feels like we would over-capitalize the business. We take the responsibility of returning shareholder value very seriously, and over-capitalizing is a quick way to limit everyone’s upside. If it turns out we’ve found a massive opportunity, and we’re scaling quickly, raising more money may make sense for us.
2) We haven’t decided what we want to be when we grow up. Do we want organic, steady and predictable growth? Or do we want to use additional funding to scale up really fast, have a board of directors and go big? There are pros and cons to both.
3) I’ve seen many repeat entrepreneurs be overconfident with their product and market. Time and time again, I see founders either raise (or invest themselves) millions of dollars in a business before even having a customer onboard. Having a smaller bank account creates a powerful incentive to make sure you’re solving a real customer problem that can generate sales. In other words, it keeps you hungry. For our type of business, we don’t need $1 million in capital to get the first few customers.
I like to think of fundraising as dating.
- Seed round = first date / build the product
- Super-seed = going steady / find more customers
- Series A = move in together / there’s a real, validated opportunity here
- Series B+ = let’s get married and commit to this path / go for broke
For now, we need to get to know our customer and product better. I’m sure we’ll consider raising more funding in the future, most likely once we have some level of traction with customers.