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Identifying your funding needs?

We've been accepted into 500.co's Summer program and are focused on launching our beta in the next few weeks. There is a lot of interest in our project (our attorneys took a position too). We've raised a seed round and I'm starting to look at what next.

There is a very real chance that our revenue will be significant enough to avoid a series A but with that said, a raise would accelerate growth. Also, raising money in my experience, takes months to close so I do I start that process (which requires considerable time, effort and distraction) only to find we may not need it? And how do we determine our needs if we have some what of a moving target?

9 Replies

Rob Gropper
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
Kate, congratulations and a big pat on the back for your progress! certainly the best time to raise money is when you don't need it. Musk, Hoffman, Dorsey, et al didn't raise money because they had to, but because of the leverage/mileage they could get from their high-profile, well-connected investors. It was also a good hedge against economic/market down-turns, and, as you mentioned, gave them more runway to scale than internal cash flow and their personal deep pockets. we are in a similar position with my current startup. we plan to raise money late in year 1/ early year 2 to support expansion even though it appears that our internal cash generation should allow us the luxury of not needing to raise outside money. i would say make the connections and start the process now. establish on-going relationships with investors you like and keep those target investors warm until you decide what you need.
Kate Hiscox
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Kate Hiscox Entrepreneur • Advisor
Boss at Venzee
Rob have you considered crowd funding as an option so you have more control over when to 'turn off the faucet' so to speak?
Rob Gropper
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
yes we are considering it. actually the state of Washington recently passed crowd funding legislation...since the feds can't seem to get off the dime - http://www.xconomy.com/seattle/2014/04/09/state-level-equity-crowdfunding-the-next-big-thing/. It looks like the state agency in charge of implementing this should have all their ducks in a row in early 2015 to allow WA businesses to actually start raising money via crowd funding. If you have plans to take your company public it is unlikely that crowd funding will get you the connections to wall street that the firms on Sand Hill rd. can get you, however. crowd funding might be a good bridge however.

Vijai Anma
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Vijai Anma Entrepreneur
Startup Entrepreneur and Advisor
Seems like you already have a seed round closed. So, you should have enough runway for the next few months(?) at least. I would focus on your beta and getting lots of traction before you raise another round. Your valuation would be higher and you would have wider choice / terms of funding. Best time to fundraise is either before you launch or after you launch (with plenty of traction). If you are not confident about traction, then you should raise money now. Being entrepreneurs we are eternally optimistic :-) If i were in your shoes, I would focus on your product for now. I have been in this trap where fundraising can become very addicting when it is going well. Every time someone sends your a check, it is a dopamine hit. However fundraising is not building your business. Build your business and have a better sense of the market, then go raise Series A with data to back up your claims. Hope this was helpful.
Rick Nguyen
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Rick Nguyen Entrepreneur • Advisor
Cofounder @ Spot Trender
Agreed with what Vijai said, Fundraising is not building your business. It's simple yet profound. Closing a huge round might be glorious, but at the end of the day, getting real traction (use growth and/or revenue) is where the real fun at.
Kate Hiscox
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Kate Hiscox Entrepreneur • Advisor
Boss at Venzee
I agree with what you both said about building the business but that wasn't the point of the question. Raising funds takes time. Not sure if you guys have raised but it doesn't happen in two weeks. We have a seed round that gives us some flexibility but having been through this process more than once, unless I decide to start looking to raise soon, we might hit a time crunch.
Rick Nguyen
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Rick Nguyen Entrepreneur • Advisor
Cofounder @ Spot Trender
What we did at my startup before raising is make an expense projection which includes everything for the next 12 months. Then raise enough to last a year. Once you have revenue, reinvest in growth.

Long story short, I think you need to raise enough to last for at least 6 months, preferably 12 months- assuming revenue doesn't come in.





Kate Hiscox
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Kate Hiscox Entrepreneur • Advisor
Boss at Venzee
Right - we are good for 6 months but as it almost takes that long to raise, hence my wondering if its something I should start now. I think crowdfunding might be a good bridge for us potentially. Our burn is very lean but we want to put our foot to the gas and scale quickly to extract every advantage out of first to market.
Rob Gropper
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
Kate;
i agree. i would look into crowd funding as well as conventional angel/VC funding. I would simply start the balls rolling on the angel/VC front and keep them warm until you can decide. Let them know upfront that you are considering raising a round and you want to start the discussions now, but close before they smell desperation.
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