To Raise Capital or Not Raise Capital as a Founder.

Steve Jobs, Sam Altman, Jeff Bezos, Bill Gates, Elon Musk. All of these people are considered the visionaries across generations. Their companies stand as the most valuable in the world and they are well known by just about every single person on Earth. And yes, all of them raised capital. But the reality is, they didn’t actually have to. I used to think that the only way to be successful in business was to have access to capital. The old saying, “it takes money to make money” is definitely a real thing. But how much money is needed to make a successful venture? The answer to that is wildly dependent upon the venture that you are looking to launch. They did all raise money to get where they are today, and they raised A LOT of money. But they didn’t actually have to because what they were working on was something that was a valuable idea. The best use of capital, and really the main need for it, is to accelerate the process and grab the marketshare.

Most of your job as a CEO is running a company and asking people for money. The fundraising also never stops. While a funding round may conclude and you can take a bit of a breather, you are then managing the shareholder expectations, managing cash flow, and preparing the company for the next round of a money raise. This is how those founders make their big “exit.” But it isn’t an easy path and it isn’t for everybody. If you have spent any amount of time around the startup space, you will most likely hear questions that involve the following: “Did you guys do a Series A?” “What is your cap table looking like?” “Who was the lead on that round?” Basically, these have nothing to do with the business operations or the product, merely the money raise and the equity associated with the company. But this is often the lifeblood to a company who is looking to scale and solidify themselves as the next noun or verb in a category. But raising capital comes with its positive and negatives. And these are a few things that I didn’t know when I first went to raise capital for my company.

The first thing I needed to learn was about how the finance world actually worked. When I first started my company, I just had an idea. I had a dream of what I wanted to build, I was going to work on it no matter what, and I wanted to build a company that would make a big dent in the world. So, naturally, the first thing that I thought was that I needed to raise a lot of money so that I could hire a bunch of people and build it as fast as possible. I think as founders, we have this sense of urgency that it has to be built now or the chance will disappear. And that is true to a certain extent because timing does actually matter (even though you can’t accurately predict if you timed things correctly). But at the end of the day, the decision to raise capital will fundamentally change the way you run your company, regardless of the investor.

Most of our perception of investing has been shaped by Shark Tank and that money just comes and you give up a percentage of the company, hug when you take the deal, and then it is pure success from there. But the closing of the capital is only the beginning. In fact, the pressure usually just increases. Even with a supportive investor, there is a certain responsibility that you feel as a founder to perform even better in order to deliver an ROI that is significant. But at the end of the day, your success is actually dependent upon your business model, not the hype of a product. The best businesses are the ones that start by doing one thing, extremely well, profit from it, and then slowly expand. But the first step of doing one thing, extremely well, is the make or break for a company. You could start a company without taking investment and be out of business in three years. And you could start a company by taking a lot of investment and be out of business in three years. At the root of it, it has nothing to do with the money. And this is one of the hard lessons that I had to learn as a founder.

My business plan was fantastic. In fact, I still think it is a great business plan for what I want to build. It has a structure that can position my company to be a market leader and also be extremely efficient. I thought that I had checked all the boxes that every investor would line up for. But one of the first pitches that I had, I was met with, “You are trying to boil the ocean.” My first thought was that they just didn’t understand it. And that can be true for some investors. They may just not get the business model. But in this case, this investor knows what they are doing and they were 100% right. It wasn’t that my business model was bad, it was that it was too much to accomplish at once, even with investment. Amazon began by just selling books. Tesla started with just a roadster, and Apple began with just one computer. It doesn’t much matter what the product is, there is a way to find the way your company can actually make money to survive. And this was something I didn’t understand because I just thought that if you raised enough money, you can overcome any of those hurdles.

After numerous pitches and so many rejections, I began to think about how I could do things a bit differently. They say that the hardest million is your first. But it is because you have to solve how to turn a dollar into four dollars. That meant working on my business model. We did raise some capital but all it did was buy us some time to solidify our business model and position ourselves for growth. This was incredibly important to do but I knew that I had a long road ahead. So for the past two years, I have been refining the business model and when I reflect upon the growth of the company, it has a much more solid foundation, proven direction, and we know the lane that we are in as a company. The path was difficult and there has been A LOT of stress along the way. The blood, sweat and tears have all been part of the journey, and the roller coaster was, and still is, very real. But had we received a bunch of money from investors two years ago, we would not be the business that we are today and I am grateful for all of the rejections. In fact, every single rejection or challenge tested our model without as much at stake.

The biggest lesson that I have taken away is the timing to take capital. There is a time and a place to do it, especially as a founder. In the beginning, you will lose all of your equity in your own idea because you haven’t built any value yet. Test your idea first, build it in the most simple way and see what people think of it. Gather feedback as much as possible. LISTEN as much as you can and be open to being wrong. Pivoting is totally ok as long as you have a reason for it. You must have a direction and a system you are trying to optimize. And not everything will work but you will learn what calculated risk means as well. Once you have your idea validated, your business model optimized, and you need help getting it out the masses, THAT is when you should look to raise capital. You won’t give up as much equity, which is great. But most importantly, you can continue to focus on growing your company, not spending your time hoping it all works out. They say hope is not a strategy so don’t make it one.

But one thing I haven’t talked about is if you even need to raise capital at all. If you have a good business that is producing profit, you have to think if you even want to get out the masses. There is a danger with trying to “make it big.” More money more problems is definitely a thing and you have to know that before you make the leap. Some really successful companies have been built without any outside investment. The only downside is the time that it takes to build it. However, the process is the fun part. Building a company, building your dream, that is what we all want to do. So if you love what you do, despite the hard times, why be in a rush? Play the long game, see where it goes, and be patient. There once was a time when people would work at companies for 40 or 50 years, not doing the same thing for all of the years, but consciously working towards an end goal that they knew they would achieve in the end by taking one step at a time, day after day, week after week, year after year. I have so much respect for those people because they are focused on their dream, not the quick return.

So while I have taken investment for my company, and I want it to succeed sooner rather than later, I am playing the long game with what I am actually pursuing. I am pursuing telling stories of people. And that is my goal for the next 40 to 50 years. How it plays out is, of course, still to be determined. But as long as I have my goal, I don’t care how long it takes me to get there because I know it will happen eventually. I just have to be open to the path not being linear and knowing that not every day will be wonderful. But the beauty of the growth comes in the lessons from the hard times. I don’t regret taking investment at all. In fact, it is what got our company where it is today. But I am now conscious about when to raise capital, have a much more refined business model that is finding traction, and have a clear focus on the next ten years of what I am building. So go out there and just build something. Make it great. And from there, the rest will come. Just be patient and don’t just take the money because you feel like you need to. You’ll know when you need it. Or if you need it at all.