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Why Startups Should Always be Raising Money

Money makes startups fast.

Let me explain by starting with the obvious. As a startup founder, going to have write checks to a lot of people who provide you services, whether it’s an IP lawyer or a website development firm. Maybe you’ll convince some to give you free or reduced services for a startup and maybe you’ll convince some to give you services for equity. But for the most part people will need to be paid, particularly if you want quality work.

And you’re going to want to hire and pay those people when you need them. Startups need to be at the front of the line with every service provider--and that takes money. You do not want to be the customer that someone fits in when they can because you’re getting a deal.

You don’t want to be that customer because it slows your product development time and that can be devastating for a startup.

For most entrepreneurs, speed to market might be the only advantage they have. I can almost guarantee there is someone out there thinking about the same idea for a business. The only difference between success and failure is who gets there first.

What fuels speed? Money. And you’ll probably need more money than you think.

Entrepreneurs usually underestimate their cost to get to market. That’s why we ask every entrepreneur to do a three to five year forecast on revenues and cash flow. We’re not trying to make them accounts, but we want them to realize the costs they’re going to face. The cash flow statement helps them understand how much money they’ll have to raise to hit their revenue goals.

But that’s just the first part. Once you understand how much capital you’ll need to quickly and efficiently get to your market, you’ll have to hone a unique skillset—one that can’t be taught in business school—to entice the right investor for your business. I’ll talk about that skillset in my next post.

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