There are some different schools of thought around how much money to raise for your startup. Some say to raise as much as you can because you never know when capital winter is coming. As soon as the broad indexes fall more than 10-15% it can be very difficult to get early capital.
Most of your angel investors are invested in the stock market and their willingness to take risks has a lot to with their sense of personal well-being. Their sense of personal well-being, in many cases, is reflected in the S&P 500 indexes. So, to a certain degree, you want to get capital while you can.
But why shouldn’t you raise too much capital? Early on, your company isn’t worth as much as it will be.
Here’s an example: Let’s say you only need to raise $100,000, but an investor offers you $500,000. Should you take it and give up half your company today?
That is the dilemma of a CEO. That is the kind of problem that can and should keep you awake at night. It depends on how much your company is eventually going to be worth. If you think it is going to be worth enough that you can pay me back 10-20x the amount of the 100,000 in three-five years (in the perfect picture)…well if you can do that because your company is going to grow that much and you take the $500,000 then you have just agreed to give up 4x that amount in my payback window.
Do you want to give up all those returns if you didn’t need to if it wasn’t essential to get you to the next point on the map? Maybe you would be better off taking a little more than the $100,000, let’s say $120-150 and waiting until you hit the next milestone. And then for the next 400,000 round, instead of giving up 50% of your company now, you might only have to give up 20% later.
You have a much more valuable company when you are going to raise that second round of money. Now the counter argument is you take it now and give up half the company and maybe you don’t have to worry about it later down the road.
The solution is truly different for each entrepreneur which is why it is always a smart idea to seek out a few mentors or advisors that can help answer this question for you. There is a lot of wisdom in taking the money while its available, but there is also a lot of wisdom in preserving that value in the future for you and your family because you are the one that is going to pay the price of your time and you need to get paid for that.