I watched the latest episode of “The Founders” a short while back, this is definitely a series I would recommend to everyone, specially entrepreneurs. This series gives you a sneak peak at the ‘behind the scenes’ scenario of an entrepreneurship incubator. In it, a venture capitalist I follow (Brad Feld) , asks a group of entrepreneurs the question, “How many of you guys have not figured out how much money you are going to raise”. Far too many hands went up and it struck me that this question is really not given enough attention at all. As bootstrapping entrepreneurs, most of us look to raise a round of capital and more often than not, allocate an arbitrary number as to how much.
He goes on to say “At any moment in time, raise the least amount of money to reach the next moment in time that makes sense.” I thought about that statement for a long while, it made a lot of sense. I believe a majority of technology entrepreneurs envision raising millions of dollars and hopefully morphing into something like Google. We jump the gun, and this has been repeated time and time again by successful entrepreneurs; raising “too much” funding” plays against you. By setting your round requirements with a tangible milestones that can take you to the next level, forces you to focus on creating a realistic trajectory for your business. Raising a round of funding is not an exit for the entrepreneur, it is actually an additional responsibility, that must be shouldered to reach the next milestone.
In conclusion, the ability to answer the above question, with a methodical and structured plan, will give a much more positive and reassuring signal, rather than telling an investor that you need to raise $X to reach the next milestone. Articulating your vision, as well as not forgetting to bootstrap, will not only help you validate your idea faster, it will enable you to remain agile and be able to pivot when things do not seem to be working as planned.