Tom Stephenson, Managing General Partner, The Verge Fund
Once you’ve decided to finance your new business with equity capital and reconciled yourself to sharing ownership with a partner or partners for several years, it’s time to decide how much money you should raise and when to do it.
It’s not as simple as predicting how much cash you’ll need in the early years and setting off to raise that amount all at once. What you decide at the beginning has a great bearing on how much of your business you’ll own a few years down the road when it becomes self-sustaining.
If you decide instead to raise the money in multiple rounds, you give up less equity in the long run. You might even become established enough to forgo further equity financing and instead borrow money through a traditional loan.
Transaction costs and investor needs often frame this funding decision.
Understand transaction costs
Raising money costs money — and time. The biggest time-consumer involves managing the equity-investment transaction: reviewing documents, preparing due-diligence materials and negotiating specifics of the deal.
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