Startup CEO, 2nd Edition

Chapter 22When and How to Raise Money

The answer to both of these questions, of course, depends on the stage of your business. The general rule is that the best time to start looking for money is when you don't need it – but not so early that a potential investor can watch your business closely for too long a period of time before the deal. All startups have hiccups along the way and many investors are easily spooked by reality.

When to Start Looking for VC Money

If you're looking for seed capital, you may not have too many options in terms of timing but it's best to do everything you can to keep bootstrapping things along with consulting or one‐off projects. Why? At the proof‐of‐concept stage, the value of your company increases sharply with every new customer or new release, so it's best not to take capital too early – as long as you can live without it. The good news for entrepreneurs is that, between the first and second editions of this book, the costs of starting a tech company have fallen through the floor. Without the need for things like hardware and data centers and expensive database licenses (thanks to the cloud), startups can go a lot farther on a lot less capital than ever before.

If you have a business that's generating real customer revenue, with a cash balance and a predictable burn rate, and you have never taken in institutional capital before, you should probably start talking to VCs six months before you run out of cash. While you don't want VCs to anchor ...