Entrepreneurs are constantly lamenting how hard it is to raise money, so I try and be helpful and point out the metrics to raise a modest Series A (often higher now). In addition, I explain that there are challenges with raising too much money, especially when it’s done early. Raising money isn’t a success — it’s just an optional milestone along the road to building a meaningful business. Now, here are some challenges with raising too much money:
- Need to Pivot Again – Even when product/market fit has been achieved in one direction it doesn’t mean that’s the best direction. Entrepreneurs are constantly finding new opportunities and sometimes a pivot is required even after finding product/market fit because there’s another opportunity that’s better. Once significant capital has been raised, changing directions is much harder.
- Limited Exit Opportunities – More money raised equals fewer exit opportunities as there are so few exits above $100 million (see less than 2% of venture-backed companies sell for $100 million or more). Raising money, especially large sums of money, reduces optionality (see Startup Funding and Optionality).
- Down Round Potential – More money raises the bar for a future round at a higher valuation which increases the potential for a down round if growth expectations aren’t met or the market turns. Down rounds can be devastating to a startup (see Startups are Broken After a Down Round).
Raising too much much too earlier can be a challenge. Entrepreneurs should evaluate the pros and cons knowing that more money isn’t always the answer.
What else? What are some more challenges with raising too much money?
David Cummings on Startups 
David you raise good points. I recommend planning comp
any as if funding were sought then bootstrap. A good balance until fundabilility is achieved. Thanks for insight….