When it comes to funding your business, cash is king. Whether you’re a plucky two-person startup looking for a cash injection to get off the ground, or an already established fast-growth company eager to accelerate, cash flow can mean the difference between long-term success and rapid failure.
So far in my career, I’ve raised more than $200 million in capital (some of that with WP Engine) and I’ve completed more than a dozen acquisitions, so I was really excited to share some of my experiences last month with entrepreneurs and growing businesses at the Prestige Conference in Las Vegas.
As you build your business and your brand, and start seeking funding, there are myriad things to consider; three of the most important are: how much money you should raise, when you raise it, and from whom you receive it. Each of these things can be a major differentiator.
It might sound strange to say, but there is such a thing as raising too much cash. If you raise too little, your growth could slow or you could run out before you get to market. But if you raise too much, you’ll risk getting hammered on valuation and becoming unable to prove it out. It’s a delicate balance. The general rule of thumb is to raise enough to cover 18 months of operation plus 20 percent to 30 percent, though that can vary by industry, product, or business model.
Timing is also of the essence. When you raise money, it can influence direction. If you raise money too early, and don’t have a model in place to put it to use, you’ll stagnate. But if you get money too late in the game, you may jeopardize your ability to move quickly, which is imperative in the startup world.
Even more important is where the money comes from. In this case, the “who” makes a huge difference. Picking the right partner is a challenge, but due diligence pays off. Examine not just the individual investor, but also their firm – while an individual may be a great fit and a great addition to your board, they could leave the firm and be replaced. Be certain that potential investors are a fit for your company both individually and institutionally. Additionally, always put your best foot forward when meeting with potential investors – your perception is not always reality. When it comes to raising cash, it’s not just about the money, it’s about the relationship. Be sure your goals and the investor’s goals align.
What it really comes down to is the difference between smart money and dumb money – if you’re thoughtful about when you seek funding, how much you raise, and from whom, your due diligence is more likely to pay off and you’ll have an infusion of cash to help you grow your business.
April is the CFO of WP Engine. Having raised over $200 million in capital and completed more than 15 acquisitions, April appreciates the complexity of managing technology and services companies at various stages. In addition to leading the finance side of the house for both publicly and privately held companies, April has a passion for people and has lead the talent and culture teams for her various companies over the last decade. Follow April on Twitter @aprildowning1.