I know, I know – your idea is hot, your business plan is solid and you got an awesome reception from the recent demo day you participated in. You’ve got simultaneous dialog going with 10 different potential investors and have closed a couple of them in just the first three weeks of fundraising. But please don’t ratchet up your expenses to a level that assumes you’ll reach 100% of your fundraising goal. What happens if you don’t reach that goal?
For sure you have decent chances of making it, and many do. But many fall short by reaching 50-75% of the goal (see related article titled “Stuck at 75% of Your Fundraising Goal – Now What?”). If you end up in this last category but have already added incurred expenses (one-time or recurring), you could find yourself having to unwind. With one-time expenses, it’s too late. So you’ll have to look at recurring expenses, with personnel being the most likely because most of the other recurring expenses you added probably don’t add up to near as much as personnel. It’s not fun asking someone to leave the dream you sold them to come on board just a few weeks afterwards.
Instead, if you are desperate to spend in a some key areas, make your decision assuming you won’t bring in any additional funding than what’s already in the bank from your fundraising efforts. In fact, feel free to go ahead and create a couple of spending scenarios. If you only reach 50% of your goal, what will you go ahead and do? What about 75%? Review again why the amount of money you’re attempting to raise is the right amount because things change (see related article titled “How Much Should Your Raise?“). And make sure you’re properly closing the seemingly interested investors (see related article titled “Getting to Closure with Interested Investors“)
Check out my other articles related to fundraising here.