When Raising Money Makes Sense

After looking at yesterday’s post on Where to Start with a Raw Idea, I realized that the link to startup advice and the link to the VC site in the comments might overly imply that raising money, especially VC money, is the way to go. 99% of entrepreneurs shouldn’t raise professional money. Let me state that slightly differently: the majority of entrepreneurs shouldn’t raise money and 99% of entrepreneurs shouldn’t raise money from professional investors.

Here are some times when raising money does make sense:

  • There are some key mentors you’d really like to have a stake in the business, and have offered to invest for a small percentage of the business (e.g. Shotput Ventures)
  • The business you are in is a winner-take-all market where if you aren’t the leader you’ll likely be worthless (e.g. eBay for the online auction market)
  • The type of business is incredibly capital intensive such that there’s a large amount of investment required to be successful (e.g. certain hardware companies)
  • From a lifestyle perspective you need to be able to pay yourself a below market salary to keep your spouse happy, requiring outside capital (this is a tough one)

As you can see, there aren’t too many reasons to raise money. And, most businesses shouldn’t raise money.

What do you think? What are some other reasons to raise money?

4 thoughts on “When Raising Money Makes Sense

  1. Overall great- we raised money basically on #4, and we’re likely looking at raising more based on #2. I’d generalize #2 a bit, though: winner-take-all is a specific example of first-mover markets, where there’s a strong advantage (even if it’s not absolute) to grabbing marketshare, or diversifying into adjacent verticals, before someone else does.

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