Raising More Funding Than You're Worth

I've come across a handful of ambitious entrepreneurs that are still in the idea or vision stage of their startup. Even if they're the only ones in the "company," they tell me they're taking meetings with investors to try to raise 1 million dollars (or more). 

To those that are in that boat, here is a recent response I shared via email:

Lowering the implied valuation and/or elevating the amount of equity you are offering is what will make the opportunity more compelling to an investor.

Think of it all as just a simple math problem. 

The amount you're asking for + the perceived business opportunity = current valuation

With the above formula, the amount you ask for is your future working capital, which you use to build (more) value into the company. But since you don't have any products or revenue yet, the amount you ask for is much more expensive than it would be if it were a post-revenue or post-user raise. 

For example, in order for an investor to get interested in something this early, they'd want at least 51% equity. That way, at least they'll have control of your great idea. For that, though, they won't even know how to evaluate your company without any financials, so they'll round up to some relatively low whole number like $50,000 and call it a day.  

Therefore, if you need $1 million, you better be worth at least that already. Otherwise, you either won't find an investor, or if you do, they'll be treating it more like a controlling acquisition of your idea/opportunity. 

If you are unwilling to accept such a low number, you need to PROVE how and why you're currently worth more than that. It's virtually impossible to raise any sum of money when you haven't built anything yet. No savvy investor will put more money into something than the entire company is worth. It would be considered a gift at that point. 

So my advice has always been to go out and create that value yourself. Now. 

  • Embody the brand you want to build everywhere you go.
  • Acquire a customer by forging a personal relationship with them. Repeat.
  • Learn to code (or build the product yourself).

Ultimately, there are plenty of better things to do today than to passively ask for capital.