Do I Need To Raise Venture Capital? How Much?
In our new series Ask Jenny Anything, Volition Capital Venture Partner Jenny Fleiss answers the questions she gets all the time from founders and entrepreneurs. Today she’s tackling an important question for entrepreneurs: Should I raise capital? How and much?
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ASK JENNY ANYTHING: Should I raISe capital?
Hi, I’m Jenny Fleiss, Venture Partner at Volition Capital, and this is Ask Jenny Anything.
Today we’re tackling a question I get all the time: Should I raise capital? How and how much? First thing to think about is does your business need capital and how much capital do you have? What about a tech investment? Do you need to hire a big team of people? Is there inventory that you’re going to need to have on hand? Is there a brand that you’re going to need to design, a product that you need to design? And then what does that matter to related to your personal resources to maybe bootstrap the business for a while?
So let’s say you do need to raise capital. You want to think about going out to a venture capital fund. Angel investors, friends and family. The amount of capital that you need to raise is definitely one of the things to consider. The more capital you need to raise, the more likely it is you should consider a venture capital fund, a growth equity fund, a larger group that’s going to be able to write a big check.
You can also think if that should be in the form of convertible notes. So a debt structure, rather than giving away equity initially, you can think about if there’s some way that you might want to take on a convertible note that eventually converts into equity, but that lets you take into account a future valuation for the business.
If you need to raise less money going to friends and family, going to angel groups might be a great way to get started to build some traction and get initial milestones so that you can then raise money from the institutional investor a little bit further out. One of the biggest things that entrepreneurs don’t think about is the amount of partnership that they may want and benefit from in raising capital.
When I co-founded Rent the Runway, we were first time female entrepreneurs graduating business school and our eyes wide open that we both needed a lot of money to start the business, to buy inventory and to get a website up and running. We were not engineers ourselves, so we knew we’d have to hire talent for that. And we also wanted someone who had been through this before, who had worked with other businesses, who had maybe started their own business. And so we we partnered with the venture capital fund, not just for the check, but also for that partnership of someone around the table helping us go through all of the motions of being an entrepreneur and starting a business.
Hope this was helpful. And please send your questions to firstname.lastname@example.org or fill out the form below.