Wise heads say "Things always take longer to deliver and cost more than you anticipate. You will always need more money than you think, so take the money whilst it is available." This thinking is both true and theoretically sound, but I can't help dwelling on some contrary experiences.
It is very difficult to get your customer proposition, delivery, marketing execution and business model all right at the first attempt. It would require skill, precision, determination and a lot of luck. It is the luck element that intrigues me most. Equally it is possible to catch a wave at your first attempt and cruise right into the beach. Most surfers, whilst learning, don't get everything right at once, which is what it takes to catch that wave.
If we think of the funding cycle, we should think of the amount of capital required to get to the next little wave on the shore break, before going for the big waves out the back. Let me explain; it is very difficult to have raised money on the back of a business plan - which provides clear allocation of capital through various budgets for the different components of your business - and then not invest the capital according to your budgets. If your plan is a ‘breakeven' plan, you will probably have built in enough ‘head room' to allow for a few bits of slippage or delayed sales, and still come out on budget. Problems arise if one (or more) of the business components needs to be re-evaluated and substantially changed, but you have already committed capital in the others.
If you paddle too quickly, too early, and don't catch the wave, you run out of money and exhaust the energy and goodwill of shareholders. If you paddle too weakly, too late, you lose your market opportunity to someone else catching your wave. I have struggled with this quandary of both timing and shaping.
Overall, I think it is important to constantly engage with your market; it will make it more likely that your core proposition will get more things right, rather than obsessing about secrecy and misunderstanding customer needs. This is not a universal truism, but would hold good for most early stage technology businesses. Other than that, I would simply say that you will not be lucky in every part of your business, and that it probably better to make mistakes with a business that is large enough to do what it really needs to do, and small enough that you are not ploughing through cash in some areas of your business whilst you solve problems in others.
Business milestones related to investments tranches are important to understand but can also be dangerous. The best management (and investors) will read the water conditions and avoid getting caught in the rip, even if it means missing a particular wave. In other words, if some idea sucks, don't get wiped out trying to prove it is right. It is best to admit your business plan is wrong, and execute a cutback, to avoid trying to erroneously chase targets. On the whole, it is best to raise money with new rounds, valuing the business as it is, rather than getting into pre-conceived performance measurements which may be outdated or suit a mature business.
Learn to surf in the beach break, and get your techniques right, before taking on board lots of capital - it's easy to waste. As you journey between investment waves, you will constantly improve and add more mastery of techniques to validate your approach. This improves the capital efficiency of the business and allows you to support and protect your valuation through increasingly large rounds of capital.
Chapter 6- Snakes and Ladders- How to Close an Angel Round
Chapter 5- The X Factor- Pitching for Capital
Chapter 4- On a Wing and a Prayer: Choosing angels for your first rounds
Chapter 3- Get your capital model right
Chapter 1- Suspend disbelief and discover new lands
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