If you are a first-time startup founder, then like mine was, your instinct when starting out may be to try to go out and raise money right away.  After all, it is scary starting a company that is funded entirely out of your own pocket.  You want desperately to find a team to build your product, and paying salaries feels like a distant dream.  You see clearly how much needs to be done, and can’t wait to head down the path even faster.  Plus, funded companies seem to get so much more visibility and exposure.  What better way to accomplish all of these things than to go out and raise your very own round of funding, right?  WRONG!

The last thing that a startup should be thinking about in the earliest phases of development is raising money.  The further you can get a business without outside capital, the more value you are creating along the way.  While it may seem like building relationships with investors early on “for the future” is strategic, in reality, your time is much better spent building product, buidling a team, talking to potential customers and thought leaders from your target market, and getting mentorship from serial entrepreneurs with relevant startup experience.  What will get investors most excited is the team you assemble, a real product with real users and real traction/momentum,  and clear direction on how the product and model will evolve over time.  None of these aspects can be furthered by having early discussions with investors, and the only thing those discussions will accomplish is to distract you from doing the things that will ultimately make your company an attractive investment.

Even if you are able to raise money successfully early on, I would argue that you still may not want it.  Operating a startup without capital may be the most stressful phase of the business, but it is also the most fun.  You have no one to answer to other than your co-founders.  You can take your time to tune the model, experiment in fun and important ways, and really push the envelope in terms of the product and business decisions that you make.  It isn’t that you can’t still do these things once you get the right investors involved, but getting those investors will take a lot of time that could have been better spent building the business.  Plus the longer you wait and the more value you create in the meantime, the more efficient your fundraising process will be, the higher the caliber of the investor group you will assemble, and the less of your company you will need to give up in the process.

I’m not saying that there aren’t times/places in a company’s lifecycle where it makes sense to raise outside capital - there absolutely are, and at those points, not raising capital may be the wrong move.  But many first-time entrepreneurs seem to fall into the trap of thinking the time to raise capital has come well before it should.