One of the most common questions asked by startups and more mature businesses looking to grow is – how do I raise money from outside investors? There are a number of answers to that question. However, before you ask yourself that question, I would suggest there is a more important one – should you raise money from outside investors? The answer to the second question, in turn, requires you to ask yourself some others. Don’t worry – eventually you’ll get to answers, but the point is, the decision to raise money from anyone other than yourself (even friends and family) should not be made lightly.
Some of the questions you need to ask are as follows:
- What do I need the money for?
- How much do I really need?
- When do I really need it?
- Do I have it on my own; and if so, why would others put their money at risk if I won’t?
- Are there grant funds or other public or private assistance available?
- Can I borrow the money rather than diluting my ownership?
- Am I comfortable with all that accompanies outside investment (e.g., loss of control, dilution, etc.)?
- And . . . only after answering all of those questions and determining that you need outside investors – who are my ideal investors?
The point is, the most expensive, complicated, intrusive and dilutive money that you bring into your business is outside equity investment. So, when you ask and answer the above questions, consider what you can do to structure your company and business plan to maximize the growth you can achieve with your own dollars before bringing in outside investors. While it may seem more expensive and risky in the short term, you may find the opposite to be true in the long run.