Money Is Time

One of the most important decisions a team needs to make is how much money to raise. As the 90's wore on, the answer was pretty easy: as much as possible. Capital seemed almost free, marketing budgets were getting big, venture funds were getting bigger and $100 million rounds were not out of the question. The amount of capital raised had little to do with a company's needs and the whole issue of how much is enough was rarely discussed.

Needless to say, the pendulum has swung hard to the other side and early stage equity capital is now very expensive. Even so, we often see teams trying to raise too much capital, more concerned with protecting against any future financing risk than worrying about being overly diluted.

When figuring out how much money to raise, remember the simple maxim "money is time." You aren't raising money as much as you are raising time to create an uptick in the value of your enterprise. Don't focus on raising enough to get to profitability, we rarely believe that will happen in the timeframe you predict anyway. Figure out what is the next critical milestone -- getting the product finished and into customer's hands, for example -- and raise enough to reach it with 3-6 months of capital left (to give time to raise the next round). Any more than that is too much.