Reason #6: You raised too much money too soon
Wait, too MUCH money? Is that really a thing?
YES, it is possible to raise too much capital too soon in your startup journey. If you don’t have focus, don’t understand your problem or your target users well, or don’t have a clear plan for how you’re using the money and how that money is going to gain you new customers or revenue or both, then it’s TOO SOON for you to raise it.
Investors want to see a return on their money in a reasonable amount of time, usually 3-5 years. So if you’ve been “thinking about” your idea for 3 months and someone hands you a cool half-mil to go make it happen, you probably have not done the work you need to to know what to do with that money that will generate the return your investor is looking for… Think of it like giving a toddler a $500k college fund and expecting them to get value from it within 5 years. Ridiculous right? Well, money into your startup too early can have the same effect!
We’ve seen companies raise money too soon, waste all of it trying to get their feet under them, and then have a much more difficult time getting additional capital when they actually have a viable business model. Also – if you’re raising too soon, you’re giving away more of your company in exchange for that money than you would if you had more proof of what you’re doing!
Take the time to do customer validation to understand the problem you’re solving and how the people you’re solving it for perceive it. Then take time to build a prototype and validate that with your end users too. At the end of that process, you’ll have a much better understanding of your market, your product, what your MVP should be, and how much money you really need and exactly how you’ll spend it to reach your goals.
Go forth and validate your ideas, friends!