Evan Carmichael warns founders against raising money too early. Premature fundraising kills your valuation, wastes your time on pitches instead of building, and forces you to hire before you know what you're doing. Bootstrap first, prove the model works, then raise to scale.
Chapters
Hey, it's Evan, and if you're thinking about taking on investors for your business, make sure that you're not too early stage for it. There's a number of different reasons for it, and this came out of a discussion with a buddy of mine. He's looking at potentially raising capital and bringing on an angel investor. There's a couple of problems. Okay, first off, if you go in too soon, if you go in too early, they're going to kill you on your valuation. You're not going to be able to get the value that you want from your business. Second thing is, it is almost a full-time job raising money. So you're going to have to factor that in. You're not going to be spending time running your business, you're not going to be spending that time raising money. You're now bringing on a partner who hopefully you can work with, but you don't know. The best way to raise money is experience. Expansion capital. You find a way to make things work on a small scale and then expand it out because you know it's going to work. You're going to get the best valuation and your chances of success skyrocket. If you bring on money too early, then you have to go out and you have to first bring on a new partner with your investor. Then you have to go out and hire a team. So maybe you hire a salesperson, maybe you hire an admin person, maybe you hire a marketing person. Maybe hire some production assistants, whatever it is. You got to hire a team. Have you ever had success in hiring a team before? Have you ever hired a salesperson before? Do you know what to do to make it right? If you've never done it before, if you've never had success hiring a salesperson, for example, how do you think you're going to have success hiring 5 people at the same time and bringing on an angel investor partner? There's a chance it could work. And if it works and everybody does their job, then you could hit the moon and that's great. But there's a huge chance that it's going to crash and burn. And I don't want that for my friend, and I don't want that for you if you're in the same situation. Get some experience. Build things up. It's okay to bootstrap. It's okay to be small to start. You have a big dream. Show that it works on a small scale and then take money on to expand. Those are the companies that have the greatest success. When I was in the VC world, I rejected 99.9% of the business plans that came in because they were too early stage. The worst-case scenario here is it doesn't work out, right? So he takes on the money, loses a portion of his company, say he gives up 30% of the business. He has to fire his team, he's back to what he was doing before. The challenge here is now you have a minority shareholder who is not so friendly probably towards you because you've just blown all his money, who could buy you out through a shotgun agreement and you've lost your company. Or if you ever try to go out and raise more money, nobody's going to want to support you because you have a 30% shareholder who's doing nothing for your company, and now you're diluted to 70%. And for any other investor to come in, they're going to be worried that you're going to get diluted so much that it's not going to be worth your time anymore. If you only own 5% of your business, are you still going to bust everything out to make it work? Probably not. That's a big fear, and no investor wants to come out to buy another investor out. So if you make the wrong decision with your first investor who's taking a sizable chunk of your business, That could be the end of your business if it doesn't work out. So make sure you make the right decision. Don't just jump into it. My advice is still prove it on a small scale. Show that it works. Have success in your— and faith in yourself that you know how to bring on a salesperson, you know how to bring on an admin person, you know what to look for. Now you're ready to grow. You've built it in your city, in your state or province. It works. You may not make a lot of money yet, but it works. Now you have your model to explode and take over the world. Don't take on money too soon because it can tear your company apart. Believe. For those of you watching, like the video, please give it a thumbs up below, and I want to hear what you have to think. If you have a comment, please leave it in the comment section underneath. You have a question for your business, leave it below. I'll make a video reply. Thank you guys. I'll see you soon.
