4 surprising things you need to know when seeking financing
There’s no one-size-fits-all solution when it comes to financing.
When it comes to money and financing, there are some rules that seem like no-brainers: working to become the next VC unicorn = good; getting into debt = bad. Well, like most things in life, rules aren’t always hard and fast. It depends on the business and the situation, of course, but sometimes the best course of action for financing your business might be the opposite of what you originally thought. Here are four surprising things you should know when you are seeking financing.
1. Raising less money at a lower valuation early on can be a good thing.
It’s exciting and validating to get a large investment and a high valuation, but after the initial thrill, it could set you on a difficult trajectory. For one thing, VCs expect valuation increases of 3-7x between rounds. That’s a high bar for even top-performing companies, especially if there is a market correction. It can also reduce your exit options, since the higher valuation narrows the number of buyers. So raising only what you need, at a lower valuation in the beginning, may actually be a better move.