Mark Suster on Why You Shouldn't Raise Too Much Capital Too Soon
Mark Suster is one of the most prominent VCs who has had success on “both sides of the table”- from being a 2x entrepreneur to becoming an investor. But his entrepreneurial journey wasn’t free from failures and numerous mistakes.
In fact, as he said in his talk Honest Advice on Starting a Company (see video below) at Stanford University, “I made every mistake at my first startup, every single one: I raised too much capital, I hired too many people, I started talking in the press before my product was any good, I charged too much for my products, I staffed up quickly.” In this video Mark shares lessons learned from his mistakes and pays a special attention to the topic of raising too much capital. Having made this mistake on his own and having seen many related examples in tech world, Mark suggests that entrepreneurs should never hurry to raise too much capital, because “there are 2 problems with raising too much capital too quickly.”
#1 – “The expectations of you are that you’re going to do something big and you got to go fast, and I say it’s like adding rocket fuel before you really know where the rocket is pointing. It’s very destructive to a company. You’ll feel pressured to spend it and you’ll feel pressured to go fast.”
#2 – “You take all your options off the table. Whatever you're building isn't working, wouldn't you like to have some option to safely park something, meaning a sale that's not huge but at least preserves what you've built, preserves the customers, preserves some of the jobs from the people you took out of their other companies and maybe creates a little bit of wealth for yourself? You give up that option if you raise too much too quickly.”
When it comes to fundraising Mark advises startup founders to raise money from angel investors first. In Honest Advice on Starting a Company, Mark also shares useful insights about angel and venture investing.
by Natalie Myhalnytska
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