At Pardot we chose to not raise outside capital and experienced the Benefits of Not Raising Outside Capital. With that said, I’m on the board of several fast-growing startups like SalesLoft and Terminus, so I’ve had the chance to see the other side. Not raising capital — if you can do without it — does make things easier overall, however it also makes it significantly harder to “win” the market.
Here are a few benefits of raising outside capital:
- Grow Faster – The number one reason entrepreneurs want to raise capital is that they see a chance to grow faster. Sometimes this is taking a model that’s already working and significantly expanding it. Sometimes this is investing ahead of expected revenue such that there’s an opportunity to scale faster and more efficiently. Regardless, growth is at the core of raising money.
- Helpful Board of Directors – A board is more work and structure but brings with it a good rhythm of planning and review at a high level. VCs are usually on 6-10 other boards so they can bring best practices and recommendations from experiences across a variety of startups. Boards provide entrepreneurs with help and guidance in scaling the business.
- Gain Marketshare – For most venture-backed tech startups, the game is to gain as much marketshare, and corresponding revenue, as fast as possible to either become a target for an acquisition or go public. While markets are rarely winner-take-all, they very much place a high reward on being the top three.
- Great Expectations – Once you raise money the clock starts ticking to generate a return on investment. This is motivating for many entrepreneurs and helps them focus on building a large, valuable business. Entrepreneurs are often ADHD such that outside investors can be helpful as a forcing function on the desired target.
Raising outside capital should not be the goal for the majority of entrepreneurs. Only in rare circumstances should capital be pursued and these are a few of the benefits that come along with it.
What else? What are some more benefits of raising outside capital?