How often and when should founders raise capital?

Mike Salguero · published Apr 5, 2023

Founders should build on the side until they hit a concrete capital need, and raise then rather than raising because everyone else is raising.

At his first company they raised because TechCrunch only wrote about people raising money, so they assumed that was what good entrepreneurs did — and then the train wouldn't stop.

19:45 20VC: The Memo: Scaling to $600M Revenues with No Venture Funding, The Most In Detail Breakdown of Consumer Subscription Unit Economics & Why D2C and Consumer Subscription is Not a VC Backable Model with Mike Salguero, Founder @ ButcherBox

Zach Perret · published Oct 16, 2024

Money is just a resource: you should raise it when you actually need it to solve the next challenge, and not before.

Plaid was profitable early and not spending much, so capital wasn't the tool needed at that stage; later it became the needed tool and they raised.

Scope: and raise in the most efficient way possible when you do

24:47 20VC: Why Founder Mode is Dangerous & Could Encourage Bad Behaviour | Why Fundraising is a Waste of Time & OKRs are BS | Why Angel Investing is Bad for Founders to Do and the VC Model is on it's Last Legs with Zach Perret @ Plaid

Mamoon Hamid · published Oct 21, 2024

You should not always be raising — a CEO's job is to ensure the company never runs out of money, so if you're well capitalized you should go heads down and build

The obligation is solvency, not continuous fundraising; with $300M on the balance sheet there's no need to raise

Scope: assumes the company is well capitalized

38:56 20VC: Kleiner Perkins' Mamoon Hamid on Investing Lessons from Leading Rounds in Figma, Slack and Rippling | Lessons Building a Generational Defining Firm with Kleiner Perkins | AI: Where Value Accrues, Startups vs Incumbents & Scaling Laws

Paul Graham · published Mar 2005

Founders should approach VC firms well before running out of money, since VCs take months to decide and their deals involve larger sums, longer timelines, more dilution and more onerous conditions than angel rounds.

You don't want to be running out of money while negotiating with slow-moving investors.

source How to Start a Startup

Paul Graham · published Nov 2005

Founders should start looking for their next funding round immediately, even with five months of runway left.

It takes time to find investors and always more time than expected for a deal to close even after they say yes.

source How to Fund a Startup

Dominik Richter · published Dec 1, 2023

Their biggest fundraising mistake was starting processes too late, twice coming within days of having to file for insolvency.

Rounds always slip — things pop up, closings get delayed by two weeks then a month, a document is missing — and a founder has a duty to flag when payroll is at risk.

Scope: refers to the company's first one or two years

33:17 20VC: HelloFresh CEO on Why When You Raise VC You Only Have Two Options, Why Your IPO Price is Irrelevant, Why Timing is So Important in Going Public & Why D2C is Not Dead with Dominik Richter

Paul Graham · published Oct 2006 · hedged

Raising VC-scale investment is a huge time sink, likely more work than the startup itself, and that time is lost to competitors who are building.

The time required to raise money grows with the amount; at millions investors get cautious and engage founders in endless conversation.

Scope: millions-of-dollars rounds

source The 18 Mistakes That Kill Startups

Zach Perret · published Oct 16, 2024

Raising money is largely a waste of time, so companies should raise as infrequently as possible.

Fundraising consumes founder time that could go elsewhere; Plaid went two and a half to three years between rounds while revenue grew.

Scope: framed as Plaid's own philosophy

24:12 20VC: Why Founder Mode is Dangerous & Could Encourage Bad Behaviour | Why Fundraising is a Waste of Time & OKRs are BS | Why Angel Investing is Bad for Founders to Do and the VC Model is on it's Last Legs with Zach Perret @ Plaid

Paul Graham · published Aug 2013

The right time to raise money is when you can convince investors, not when you need money or when a deadline like Demo Day arrives.

Unless you're a good con artist you'll never convince investors while unconvinced yourself, since they detect bullshit better than you produce it, so premature fundraising wastes everyone's time.

source How to Convince Investors

Paul Graham · published Sep 2013

Raising money before you're able to convince investors is worse than useless because it burns your reputation with those investors as well as wasting time.

You'll not only waste your time but also burn your reputation with those investors.

source How to Raise Money

Michael Eisenberg · published Feb 8, 2021

Whether a founder should always be raising depends on the size of their competitive moat: with a low moat you cannot afford to lose the capital game, while with a high moat you may be advantaged by taking less capital

Taking less capital keeps you nimble and avoids having to modulate growth to catch up with valuation and capital-return expectations

12:22 Moat strength determines whether founders should always be raising

Harry Stebbings · published Aug 29, 2022

The interviewer holds that founders cannot align their fundraise to macro markets, since conditions may be worse in six or twelve months — if you need to raise, just raise

Markets could be worse in six or twelve months, so waiting for a better window is not a reliable strategy

10:27 Dont wait for better macro timing just raise when you need capital

Paul Graham · published Oct 2010

Startups are often mistaken in believing they will never need to raise more money.

source Founders often wrongly believe they will never need to raise more money

Paul Graham · published Sep 2013

Inexperienced founders imitate the type A fundraising of famous startups but, lacking a clear path to profitability, end up doing type B fundraising and are surprised how difficult and unpleasant it is.

source Founders mistakenly imitate type a fundraising of famous startups without matching profitability position

Paul Graham · published Sep 2013 · hedged

Type A fundraising is so much better that it may be worth choosing a different, less capital-intensive idea to reach it sooner.

A YC founder said that as a first-time founder again he'd leave up-front capital intensive ideas to founders with established reputations.

source Choose a less capital intensive idea to reach type a fundraising sooner

Paul Graham · published Oct 2015

Founders should not avoid raising money merely to protect themselves from hiring too fast.

Not raising money prevents overhiring only because you can't afford it — like saying total abstinence is the only way to avoid becoming an alcoholic.

source Avoiding fundraising solely to prevent overhiring is poor logic like total abstinence against alcoholism