Should You Raise Venture Capital?

Raising venture capital sounds sexy — and it is! Brand name investors give you potentially millions of dollars to pursue your wildest ideas.

But it’s not a decision to be taken lightly as when you raise venture capital, you are signing an implicit contract to build a venture backed business.

Here’s what you are implicitly agreeing to:

• To strive to build a massive business that could one day be worth billions of dollars.
  • This typically implies your business has very high gross margins or leverage since it will be hard to accomplish that type of valuation without.
• To agree to not pay yourself heavily until your business is able to exit via an IPO or an acquisition.
  • If your business is cash-flowing large amounts, the implicit promise of VC is that you will reinvest it almost 100% into the business.
• To make the business your #1 priority in your life — and be willing to make sacrifices in return
  • You agree to work unnaturally hard for the period in your time that you are building the business.

As a result, not every type of business lends itself to be “VC-backable” — if your business has a large services component, or has the return profile of a small business — you may be better off pursuing alternative funding avenues.

But if you do raise money, you should be clear about what you are explicitly and implicitly agreeing to.

How to Think About Raising Venture Capital

Most fundraising advice is written by investors for founders. While interesting, it focuses more on what you need to do to raise capital.

Here is a summary of my best advice on raising money from founder to founder