When To Raise Money

This was one of the key questions we had to address in a panel during last week's Red Herring 100 Conference in San Jose. While it's not an easy question to answer, the reply simply isn't just "when you need money". In fact, being contrarian is a good strategy when it comes to fund-raising. For example, Fund-raising in emergency mode only exacerbates the negotiation position.

While there are numerous variables that come into play in answering this question, such as if the markets are on the rise or not, certain factors play an important role regardless of market conditions. If possible, raising money from a position of strong momentum  significantly helps achieve a better outcome. For instance:

1. Coordinating the fund-raising effort to coincide with a major technical break-through, closing a key business deal or distribution partnership, making or identifying a major hire, where the positive momentum you're creating could clearly benefit from the newly raised funds.
2. To use Seth Godin's popular Passion-Pop chart, the cusp of either the passion or the pop curve, when traffic starts getting really viral, would be an ideal time as well.

Comments

[Sam]

I'd suggest raising the money only when you know exactly how you'll spend it.

Seems dangerous to me to try and play momentum especially because 'momentum' is relative to a startup. But definitely raising from a position of strength is good. I guess the conclusion is raise money early on, as soon as you have some metrics to support your market hypothesis

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[Ben]

A few things that seem to matter:

manage the business to always have 12 months burn in the bank.

Raise more than you need and spend less than you can.

but most importantly, the only way to make alot of money is not take alot of money..