I’m on the opposite side of common knowledge on this topic.
The argument for raising the least amount of capital needed is the gist of the lean funding paradigm.
It keeps the entrepreneur focused, instills creativity and grass roots street smarts. It forces iteration as the backbone of both market discovery and product development. Less is more is the net of it.
It also let’s the funder stay close to their investment, managing it by objectives in a sense, creating a perpetual funding cycle. You fund what the entrepreneur needs to get to the next stage of product or market proof.
It also means that the entrepreneur is always raising funds, always on a tight leash from the sources of capital, always on the stressful watch of cash flow.
The upside of this is the lean startup concept in a nutshell.
A brilliant mashup of ideas that the best startups use to harness the market itself as a catapult not as a chasm to cross.
It works well as an operational principal, but jumps the shark as a funding paradigm in most all instances.
My counter argument to why raising more, not less is often the smart move:
1. There has never been a plan or a budget that didn’t prove absolutely essential and invariably incorrect.
If you raise to a plan you will come up short. Plan for a smoother runway into what neither neither you nor anyone can imagine in detail.
2. Being cash poor drives poor decisions, keeps you in blinders to objectives and invariably stifles openness to market opportunities.
Focus is essential but having the creative freedom to consider change and opportunities is where great things happen.
3. Lean funding by definition puts the directional control in the hands of the funders not the entrepreneur.
It is equally incorrect to assume that the funder is always the source of wisdom and guidance and that entrepreneurs are children who will put their hands in the cookie jar and glut out if left to their own devices.
I believe that the best chances for success come from raising capital in a partnership paradigm. From people who are in it for the long haul and where a small group of them can provide guidance and operational expertise.
I also believe that winning happens because the entrepreneur just nails it.
When a leap into the void, often counter intuitive happens. When you push everything off the table, and rethink market connections in bold new strokes.
To do that you need a runway. You can’t be backed into the disrupting cycle of always raising funds and always heads down to a plan.
If you have to give away a bit more of the company to create that security, so be it.
You need guidance and oversight but as much, you need the freedom to move and follow you gut.
Cashflow is king. Make sure you have it.
