From the course: Foundations of Raising Capital

Should you raise capital?

From the course: Foundations of Raising Capital

Should you raise capital?

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- I have a riddle for you. What do LinkedIn, Oracle and YouTube all have in common? Of course, they're all well-known successful companies, but they also all received investment from the well-known venture capital firms, Sequoia Capital. Now raising capital isn't a requirement. You can build a successful company without seeking investment. But there are several common reasons why companies would want to seek investment. Some businesses just can't get started without having a lot of cash up front. These businesses may need a lot of equipment, like manufacturing or robotics companies, or they may need to spend a long time working through regulation, like pharmaceutical or food companies, or they may need a lot of cash on hand to underwrite risk, like insurance companies. If you're building a business that needs money upfront to actually get the business started, raising capital probably makes sense for you. Other businesses are trying to capture a large part of the market very quickly and need to hire staff to support that growth. When Uber and Lyft first got started, they raised a ton of capital so that they could pay small teams in cities across the United States to launch the service in each of those cities. If you're hiring a whole team in cities across nearly 50 states, you can see why your costs would increase quickly. Without outside capital, both companies would have failed. But remember that taking on investment comes with strings attached. If you raise outside capital, you need to see a path for your business to be able to pay that investment back to your investors. Most venture investors want to see a five to 10 times return within seven to 10 years, and usually that return comes from either your business being acquired by another company or your business being listed on the public markets. If you aren't comfortable making those promises or operating your company under those assumptions, you may not want to raise capital. A lot of people start companies to support their lifestyle. If you're starting a company to support yourself and your family and you aren't aiming for hockey stick growth, raising capital, at least venture capital, may not be in your best interest, and that's okay, For most of human history, venture capital didn't even exist. You can still build a great business, even if you can't or decide not to raise capital.

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