Strategic and Financial Capital Placement
Connecting to 3 types of investor
| Angel investors
Not only Capital, but Wisdom
Variety of investment philosophy
Intelligence and collaboration
Frequently Asked Questions
In the best case scenario, raise capital when these three criteria are true:
- You have sufficient cash runway to provide you flexibility in the fundraising process so your back isn’t up against the wall (yes, that old adage ‘raise money when you don’t need it’ is true!). Runway = negotiating leverage.
- You’ve achieved the necessary milestones to get the valuation you think you deserve.
- You’re thoroughly prepared to deliver a pitch deck and efficiently respond to diligence requests.
While it’s certainly true that some companies can name their price, the reality for most startups is about taking the best offer the market delivers. Asking for a specific valuation can sometimes be a risky negotiating strategy. If you ask for a valuation of $x and the investors pass on the opportunity because they don’t think the company is worth $x yet, going back to that same investor with a lower valuation rarely leads to a different outcome.
Of course you want to be strategic about the amount of capital you raise, not least because of sensitivities about dilution. As such, you want to size the round in a way that gives you sufficient cushion to get to the next set of milestones and valuation inflexion points.
Debt can be a great source of capital when used appropriately. It can dramatically lower the overall cost of capital and provide a lot of financial flexibility.
But, it should be used judiciously because borrowing means you ultimately need to repay that debt … and the consequences of not repaying it are severe (i.e., bankruptcy). Remember: debt is a complement to, not a replacement for, equity.
Every company should be utilizing some sort of financial model or set of financial projections. Even if you’re at a super early stage, you should be managing to some sort of budget in order to understand cash burn and optimally time raising capital.
Understanding cash burn is one of the most important components of a financial model, and a robust model of cash burn includes detailed headcount-driven expenses. Understanding the unit-level drivers of revenue is also critical once a company crosses into the revenue generation stage.