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Decide if venture capital is the right path, weigh it against bootstrapping, and use a checklist to know when you’re ready.

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1. Should I Raise Venture Capital?

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Probably not. Far too many founders rush to bring on external funding, seeing it as a shortcut to getting money into their business or making their startup feel less ‘fragile’. Many founders embark on trying to raise capital when their business isn’t ready (or even appropriate) for raising VC funding. The truth is that you really shouldn’t ever raise money unless you really, REALLY need to.

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Here’s a short list of the most common reasons why founders want to raise capital, that also doubles as a handy list of reasons why they’re not ready to raise capital:

• Because their business isn’t making any money yet, and they want to build more features into their product in the hope of attracting customers
• Because they’ve been working on their business for a long time, and they want to start paying themselves
• Because they’ve got blind confidence that their idea will be a success, and they think investors will get excited about a high level concept
• Because they think that it’ll make their startup look more legitimate
• Because they want to pay someone else to validate their market for them
• Because an investor has recently shown a passing interest in their startup

Raising capital is not a mark of success or some sort of reward for all your hard work - it’s a target on your back. Any investor putting money into your business will have high expectations of the returns they’ll get, and how quickly you’ll be able to increase the value of their stake. At early stage, most investors want to see a 10-20x return on their investment within 5-7 years. So the $50,000 they give you today needs to be worth $0.5-$1m within a few short years, and all the pressure is on you to make that happen.

If you have an initial level of traction, you have some repeat paying customers and you have a vision for how your business could scale exponentially, then raising venture capital might be the right avenue for you. If you’re not there yet, you should focus on bootstrapping until you are.

2. VC vs Bootstrapping: A Quick Comparison