Should you raise funding and if so, how much should you seek?
Funding helps accelerate what you already have going into your business. You should have a core process for acquiring customers and providing a service. If you don’t have it then funding at this stage will only hurt your business. It’s best to continue testing your core business model until you know it works.
Keep in mid that it’s important to find the best channel for acquiring customers and at the most efficient cost. By stating your core business in numbers, you now know what it costs to grow your business.
Then ask yourself, what is the best source of funding for your business?
In addition to equity funding, you may consider debt financing, self-funding, or bootstrapping. Debt financing requires you to pay back the loan but after you do so, you own the business outright. You could self-finance, which means you put in your own money, or you could bootstrap it, which is another way of saying ‘find a customer who will pay for your product/service’. I call this customer funding. For this, you may need to offer additional services at a higher price to cover the startup costs but is a great way to grow your business as it keeps you focused on your product and customer.
Last but not least, if you decide to raise funding, how much should you raise?
Raise enough so that it will take your business to the next level. Think about the position you need to achieve to raise the next round of funding. Your fundraising should take you there and set you up for the next raise. Your valuation in any startup is low at the beginning. Raising too much money at a low valuation will end up giving away too much equity. For those with larger fundraises you may want to break it down into several milestone steps in which case you can raise your valuation for each step as you achieve more revenue.
Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies