Continuing with yesterday’s post 99% of Entrepreneurs Shouldn’t Raise Venture Capital, there is a case that I left out: entrepreneurs should consider raising money when VCs offer simple terms that keep future options open. But first, a story.
Earlier this year I was talking to an entrepreneur that was growing a nice seven figure SaaS business. There was a desire to raise money and grow faster, but the current market opportunity wasn’t large enough to warrant institutional capital (remember: the size of the VC fund necessitates the size of the minimum exit), coupled with the desire to keep options open in the event an opportunity arose for a < $50 million exit. After talking to a number of VCs, it was clear there was interest to raise money at a fair valuation and do so with a term sheet that didn’t have blocking rights (meaning, the entrepreneur could choose to sell the business and not have to have the VC’s permission).
The entrepreneur chose to raise money on simple terms while keeping options open.
So, 99% of entrepreneurs shouldn’t raise venture capital, but a tiny percentage of entrepreneurs that might not otherwise raise money, should consider it if they can do so on their own terms.
What else? What are some more thoughts on raising venture money while still keeping options open?
2 thoughts on “Raising Venture Money While Still Keeping Options Open”
Great post David. I’ve shied away from raising VC $ for the reasons you posted previously. But like this current post indicates, I think a small percentage of companies, ours included, are in a unique position. We’re at a $1.1M run rate, no debt, fully owned by two partners. I hadn’t considered it before, but it may be time to bring in some capital to take a handful of chips off the table and accelerate growth. I image you’ve seen this done with private investors as well as VCs?
Yes, exactly. You might need a bit higher run rate unless your growth rate is 100%.