How much cash should you raise?

Sunday, February 21, 2010 by Doug Allgood

Many entrepreneurs wrestle with this question and may get opposing viewpoints. I have seen recommendations that say you sould figure out what you need, double it, and don't be afraid of dilution. Other views counter balance this approach with caution that you should not take too much investment money too soon. This view is supported by examples of how taking too much money results in pressure to deliver growth before you are ready. Causing a change in focus from creating customer value and building a durable organization to meeting arbitrary business plan goals.

As I work with technology companies to understand how much cash to raise, I suggest a detailed review of the business plan. With the pace of technology change, it is important that you frequently analyze the market potential for your products, the best approach for packaging and pricing, sources of supply, and go to market plans. The analysis of the market, competitors, and cost drivers becomes the building blocks to development of a financial model. The financial model provides the lense to see the potential for your growth and to give insight into how cash would help you achieve the full potential of your business. 

Unfortunately, I have not found the easy rule of thumb to how much case to raise.  However, I have learned that following a good methodology for strategic planning, having the right financial models, and getting outside expertise will give you the best answers. 

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