How Do You Know If You're Ready to Fundraise?

Ellie, here. CEO and Co-founder of Further Faster. We’re doing our part to change the funding gap for female founders by educating more people about the drivers of the problem and starting Ready to Raise, an 8-week program for women founders kicking off in June.

We talk with lots of founders who have spent time on their pitch deck. But in lots of cases, it’s a little early to be going out to investors because they haven’t run a full cycle of their customer process. We were speaking with a startup founder the other day who had worked up an impressive deck. Their concept was helping people change careers. The issue was that they needed to help more people to do it before they started approaching investors. Running the process successfully a few times would be better than focusing on that deck!

There’s also a risk in going out too early. The earlier you go out to raise money, the more of the company you are going to have to give away in equity if you have zero proof that the idea works. Meanwhile, if you have a great, proven product and a lot of customer demand, then investors are going to look at you differently.

There are a lot of stories in startup land. You’ll hear about the person who supposedly raised millions of dollars just based on an idea. And the public relations machine also feeds into it. Many technology journalists will tell early-stage founders to come back and talk when they’ve raised a first round of investment. There are perverse incentives for us to think raising money equals success. But those stories aren’t true in most people's experience. They’re the result of hype. We encourage you to consider carefully why you’re going out for money, and to look at the timing through that lens.

Here are some great reasons to wait to fundraise:

• You’re still trying to figure out your purpose
• You’re still working on your prototype product
• You need more customers to demand your product
• You don’t need an extra influx of money and can hire people and build your product without it—remember, the best place to raise money is by looking in the mirror!
• You don’t have the energy or time to pitch investors

Great reasons to fundraise now:

• You have a lot of customers demanding your product and the trend is positive
• You’ve shown your product works for customers
• You’d like more support and guidance from investors
• You need an influx of money or you’re going to fall behind your competitors
• You have a great team but would like to augment it
• You have a solid business plan

Even if you’re not ready to fundraise, it’s worth noting that it’s never too soon to start developing relationships with funders and asking for people’s advice. In fact, going out and telling people you’re not raising money can lead to a fruitful conversation about why. Two great steps on an entrepreneur’s journey are saying “no” and knowing why. After all, they help you figure out what you’d like to say yes to, and why.

I urge founders to shift the mindset. Before you go out to raise money, go out and make friends and get advice. Home in on exactly what you’re looking for and what you’re not. And figure out what timing works for you.

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