More money if you do, more money if you don’t


“Always raise more money than you think you need.”
— people asking you to take their money

Actually, they’re right. It’s not a ruse devised by greedy vulture capitalists vying for extra points of equity.

You do need more money than you think. Why?

Today you have a business plan, featuring a plausible growth trajectory (neither too conservative nor too optimistic), and an associated cost structure to drive signups and service customers. Costs arise ahead of associated revenue, especially for SaaS companies, so you need a cash investment to fund that growth. Your projected cash low-point is $X, thus you need to raise $Y, not just to service the operational cash requirements, but to de-risk the company with additional investments you couldn’t otherwise afford to make.

But what if, nine months from now, revenue isn’t growing quite as quickly as you planned? You still signed that 5-year office lease, hired support, sales, and engineering, and brought in training, a comptroller, and a business operations person. Marketing is over-spending to compensate. You’re burning more money than you expected, but the correct course of action is to forge ahead and let revenue catch up, not fire half your team and retreat. So, you’ll need more money than you planned.

But what if, nine months from now, revenue is growing more quickly than you planned? You scramble to hire ahead in support, sales, and the additional demands on engineering. You trade money for speed — recruiting, contractors, office space, finance. You incur customer on-boarding costs faster than planned, so although in the long-run your revenue will more than make up for it, right now these unexpected new customers cost much more than their revenue contributions, and cash reserves plummet. So, you’ll need more money than you planned.

The only way you need the actual amount of money you thought you needed, is if everything in the next 18 months goes exactly according to plan — a deviation in either direction means you need more money.

You’re delusional if you think you can predict your startup’s finances 18 months out with precision! Which is totally OK — you’re not supposed to.

But not raising “more than enough” money means you’re denying that reality, and therefore causing a time-pressured cash-crunch for yourself 9-12 months from now. That’s irresponsible.

As Douglas Hofstadter says:

Hofstadter’s Law: It always takes longer than you expect, even when you take into account Hofstadter’s Law.


A business always takes more money than you expect, even when you take this fact into account.

  • Stu

    I agree with every thing in this post, but don’t ignore the impact of giving away more equity for more money when your company isn’t worth as much, may make it worth the headache 9-12 months from now.

    • Don’t ignore the impact of having to raise more money due to poor forecasting before you’ve reached the milestones you told your current investors you’d hit before having to raise more money.

      • Stu

        Your current investors care that in the end they get their money back, and depending on how much you raise and the terms, they should have very little say in future fund raising.

  • Interesting, and interesting thought experiment too. Suppose things aren’t growing fast enough and you wish you’d taken more money, couldn’t that pressure from limited funds be a good limitation to keep you from staying a doomed course too long?

    Great post Jason!

  • M Christopher Blodgett

    Yes, very thought

  • Eric James Thomson

    Proper funding is a “best guess”. Better to err on the side of caution and not have to go back to the well in a panic. Doesn’t have to be an equity dilution issue .

  • Tim

    Yes, i agree with Stu, that don’t ignore the impact of giving away more equity for more money.


    Direct Accident Management

  • dude…you’re killing me. Everything you said makes sense and you’re making me change everything, starting with my pitch (I left a comment on pragmaticmarketing post of yours), and now the amount. Back to the drawing board I go :-)

  • Thomas Coffey

    Nice article. Agree that in both scenarios you need more money. But you seem to imply that it’s always best to raise that additional money now. In the “revenue is growing more quickly than you planned” scenario, wouldn’t you have been better off not raising that additional money before the unexpected revenue growth? Presumably with better than expected revenue growth it wouldn’t be hard to find additional money at a better valuation.

    • I understand your, but no, I don’t believe that’s the right course, because:

      1. VC money is fickle; economy turns or some fad appears/disappears and suddenly it’s difficult to raise even with good metrics, or valuations/multiples are worse than they were.
      2. Fundraising is a massive distraction, easily killing 4-6 man-months of productivity for execs and legal council, so avoiding that is valuable.
      3. The “less dilution” is only true if everything (your company & the market) goes your way; if not, your dilution and terms are far worse, if possible at all. Thus, risk-adjusted, it’s not worth the *potential* for slightly less dilution.