"Oh look! Someone just sold a company similar to ours for a million billion trillion dollars. And look at that, they raised a bunch of money along the way. I bet if I had raised money I would be a huge success too."
Whether or not we think about it daily, many of us have this nagging thought in the back of our minds of the "what if?" of raising capital. We picture this alternate universe where we took on investor funding and grew to become the next great darling of our industry.
The problem with that thought process, though, is that it puts "raising capital" in the same bucket as "executing properly" which is very different.
There's a time and a place where raising capital absolutely makes sense, but often we're either not there or we misunderstand why we should be thinking about capital at all.
While having capital certainly helps, it doesn't guarantee success. Most funded companies fail, which isn't necessarily a result of being funded, but rather poor execution or a bad business model.
We get overly focused on capital as the key ingredient in success, but capital is really just an accelerant of a well-executed strategy, not a replacement for execution.
When we see companies sell for billions, it's because of execution —not capital.
We should regret not raising money when it's clear that a capital-raising strategy is the only path to success.
This often happens if we are in an arms race with a competitor where funding is a meaningful strategic difference. If we're Uber versus Lyft, and we need billions to under-write lower fares in a price war, capital is critical.
If we're facing a competitor that just happened to raise capital, unless the capital is an all-out game-stopper for us to be competitive (it rarely is), we should be able to rest easy.
You'd be hard-pressed to find a pre-IPO company that hasn't raised money, but you may be misled by the correlation.
When our companies hit a certain size, we often need large swaths of capital to grow at that level. At that point, we need to raise capital to operate at scale.
That said, most of us aren't at that point yet. We can still get to our next milestones sans capital, and we may find that we never get big enough to absolutely need capital.
When to raise funds (podcast) Every startup could put more money to use — but does every startup need funding? Wil and Ryan break it down.
The benefits of not raising capital. What happens when you avoid taking on capital and take your time to build a company? Our team discusses the benefits and how to use them to your advantage.
Where to focus before raising capital. 99% of new businesses don’t get funded by VCs and angels. If we’re going to bet those odds, there are a few key areas of focus on first if we’re going to stack them in our favor.
Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes Bizplan, Clarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.