Money is the lifeblood of a startup. The product and team are the heart and soul, but without capital, a company can’t pay its employees, rent an office or pay its bills. At the same time, not all sources of capital are created equal and raising too much capital too soon, or working with the wrong investor, can have long-term negative ramifications for your company. This short-term vs. long-term trade-off is a big part of why fundraising is just a complex topic. The key to remember throughout the process is that fundraising isn’t a goal — it’s a means to an end. Building a business you’re proud of, which solves a problem you care about, with people that share your values, is the ideal.
Startups are high-risk ventures and time is always of the essence. Many companies confuse this urgency with a need to get as big as possible, as quickly as possible, but timing is critical. At an early stage, the most important goal isn’t simply growing — it’s learning why you’re growing. This begins with understanding your pain point, building your solution, learning from your customers, and ultimately reaching product-market fit.
If you raise too much money early on, it can ironically become more difficult to reach product-market fit because a team gets less agile the larger it grows. At a small size, you should raise enough capital to build a core team and then iterate relentlessly on building the product and talking to your customers. This is a core message Y Combinator emphasizes to all companies in its program.
Read the full article at the Wall Street Journal