To raise or not to raise, that is the question...

Since I exited my first bootstrapped business in 2019, I have been involved in 7 different equity raises.

They have been for a variety of different businesses and have included all the different sources of capital listed in this article.

The investment horizon has changed immeasurably over the last 5 years, and thankfully the path to profitability and longevity is now much higher on the agenda of investors.

The big questions you should be asking are:

• Do we need to raise ?
• Are we ready to raise ?

It is a competitive market and you need to put your best foot forward.

The most attractive proposition for investors is:

• Strong team
• Proven product market fit
• Large addressable market
• Some sales with an increasing run rate
• A short path to profitability
• Knowledge that investor funds will be used to fuel growth

There are more but this a solid list. If you do not have one or two of these then that does not preclude you from raising it just makes it more difficult and you need to put a lot more emphasis on the elements you do have.

Before we get into the options there are some important things to consider before embarking on this journey.

Investment strategy

What do you want from your business and over what timeframe ? Do you want to create an infinite business that is passed down through generations, or do you want to exit in 5 years. the answer will dictate how much you raise, from who and when.

It is another job !

Raising money is incredibly time consuming, it is like having a second job. It is likely to take at least 6 months but can more often than not be a year or 2. It is important to understand that a raise will impact your ability to fulfil your role within the business and you way want to ask for some help.

Always ask for a little more than what you think you need

Conventional wisdom is to ask for what you need, however in my experience you always need more than you think, I am not talking double here, but 10-20%. The aim is to have as few raises as possible throughout the life span of the business (because it is so time consuming), however there is a certain mindset that comes with having too much money, so it is important to get this right.

Closing a round is the beginning not the end

It is both satisfying and daunting closing a round. However after a very small celebration it is important to understand the need to deliver against your plan, and if the plan changes, which it will let everyone know asap.

One huge mistake I see founders making is not keeping in contact with their investors. It does not take a much, it can just be highlights.

Bootstrapping:

Pros:

• Full Control: You retain 100% ownership and decision-making power.
• No Debt or Equity Dilution: You won't owe money or give away a share of your business.
• Lean Operations: You learn to be resourceful and efficient.

Cons:

• Limited Resources: Your growth may be slower, and you might not seize certain opportunities.
• Personal Financial Risk: Your savings may be on the line.
• Potential Burnout: Wearing multiple hats can be exhausting

Angel Investors:

Pros:

• Experienced Mentors: Many angels provide valuable advice and connections.
• Seed Capital: They help you get off the ground quickly.
• Network Expansion: Angel investors often have extensive industry networks.

Cons:

• Equity Stake: You may have to give up a portion of your company.
• High Expectations: Investors expect a return on their investment.
• Potential Differences in Vision: Misalignment with angel investors can create conflicts.

Venture Capital (VC):

Pros:

• Significant Funding: VCs can provide large sums to scale your business.
• Expertise and Networks: They often have vast industry knowledge.
• Accelerated Growth: VCs can help your business grow rapidly.

Cons:

• Equity Relinquishment: You'll give up a significant share of your company.
• High Growth Expectations: VCs expect aggressive expansion.
• Pressure to Exit: VCs usually look for an exit strategy, which might not align with your long-term goals.

Family Offices:

Pros:

• Significant Funding: Family offices offer substantial capital for your CPG startup, facilitating rapid growth and expansion.
• Long-Term Commitment: They often have a more extended investment horizon, which can align with your business's need for patience and long-term growth.
• Flexible Deal Structures: Family offices can tailor investment terms to your specific requirements, offering adaptability in funding agreements.

Cons:

• High Performance Expectations: Family offices expect substantial returns on their investments, which can create performance pressure.
• Complex Decision-Making: Involvement of multiple family members in the decision-making process can lead to complexities and potential delays.
• Alignment Challenges: Ensuring alignment between your startup's goals and the family office's values is essential to avoid future conflicts.
• Time: Take a long time to find the contact, build the relationship and get a decision.Raising money for your CPG startup can be a necessary step, but it's essential to weigh the pros and cons of each method.

Bootstrapping offers full control and flexibility, while external funding sources like family offices, angel investors, and venture capitalists provide access to resources but come with their own set of trade-offs.

Ultimately, the choice depends on your business's goals and your risk tolerance. Make your decision wisely it has long-term implications on business.