Don’t just raise money. Do it on good news!

Why is this important advice?

Because the first rule for raising money is to do it on good news – right when sales are increasing at an accelerating rate.  Or when a major customer signs a significant deal.  Or when something happens that makes an investor think this company is about to break out.

What if you have no good news to offer?

Unfortunately, the longer you wait without significant upward news, the harder it is to get attention.  It’s human nature for investors to want to buy into a fast growing future, proven by some event in the immediate past.

So, here’s the rub.

Raising too much too early dilutes the founder interest to unacceptable levels.  In recent years, I have counseled founders to raise enough to accelerate to a significant milestone that is over a year away, and to scale the business to find breakeven with two early rounds if possible.  Once at breakeven, the rush to raise more is over, and there are far more options available.  Tech businesses today can do this much more easily than a decade ago, with cheaper development costs, SaaS hosting environments avoiding heavy equipment costs, and development platforms with pre-formed routines available.  While working toward good news events, some entrepreneurs plan to take in consulting work to pay some of the costs during the early stage of a company.

Where to look if you just don’t have any good news?

If you have been in business for a while and don’t have significant good news to tell, I would make a list of possible strategic investors, people or companies that would benefit from your product or service.  They will be immune to the disinterest shown by financial investors.

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