Imagine if we bought plane tickets based on the length of the trip, as opposed to where the plane is going to land. You’d buy tickets for a five hour flight, and then parachute out when the plane flew over your destination.
Unfortunately, that’s how many entrepreneurs describe their fundraise - as a function of time, not as a function of where they’re going. I ask every CEO I meet about a fundraise: What does this raise get you?
80% of the time the answer is something along the lines of: “18-24 months before we have to raise again, we’re going to hire three sales people, four developers, and build out project X based on customer feedback."
All of that is probably true, and good to know. But improving your business is not a function of time. It is not always explicitly linked with how you spend money.
We’re looking for CEOs that know how that money will be spent and how each dollar can be used to make the business better. Whatever round you’re currently raising, the goal is to improve your business, which means focusing on the things that make the difference between being a product and being a company. You must have a very good idea of how many new sales your fundraise will produce, what cost savings you can achieve with your new money, and how you can improve your team.
Great CEOs think of investor money as a tool to be utilized to improve their business, e.g., a way to increase the number of customers, grow revenue, increase gross margins, hire great people. These are the things that make companies successful in the long run. Raising money from investors is one path to making your business better, but it is not the endgame.
What really matters is how your key metrics are going to be impacted by the money. Your raise should be driven by the metrics you already use to manage your business. If you haven’t established working business metrics that guide your decision making, then you’re likely not ready for anything other than a raise based on your vision. So- concentrate on getting those metrics straight, and figure out if you’re ready to land the plane.