Should you raise capital?

A friend of mine raised a $3.5 million seed round yesterday and I am so happy for him. It's a great validation and support for a project his team is working on for many years.

Raising capital is generally hard and exhausting, but if you need it, essential.

Money comes with strings attached

You can't expect someone will shower you with money and let you squander it, right? Banks want something you own as a guarantee. Investors want a solid business model and adhering to the agreed upon milestones.

If your investors decide you are not doing a great job running your company, they will have someone else run it, or simply not participate in the next funding round. You are expected to spend the money, quickly, and achieve your milestones, quickly.

Advantages of raising capital

Self-funded startups are growing by reinvesting money earned. It takes time to earn enough to hire batches of, say, 10 people at a time. Raise a capital, though, and you can do so right away.

Press loves funded startups. People love reading about successful companies.

Good investors will provide fantastic networking. That is probably the biggest benefit, besides money. You get to connect with people who can help you out while struggling with growth, and struggle you will.

Accelerate your growth and come further

It might take you 10 years to succeed by reinvesting profits. Spending others' money, it might take just a year or two - and get you much further. Just keep in mind investors want to get back much more than they invested. You might have been very happy with a few million dollars in ARR, but venture capitalists would count that as a hard failure.

Treat capital as a growth accelerator. Make sure you are building the right thing first.

Even if you do everything right, your project might fail. Even so, you will get the next investment much easier now because people know you and trust you. Good luck!