A long walk is a series of small steps …
How much money from investors do you need to reach profitability?
Ultimately, that is the total amount of money you will need to raise from investors. However, unless you expect to be profitable within the first year of business, the reality is that no matter how compelling your story, investors will not give you all that capital at once.
The reality is that investors will provide only enough money to operate your business for twelve to eighteen months, typically at the lower end of that range.
They do this to lessen their risk. They know, as you should know, plans change, markets change, and ultimately there is little they can do to control the use of their funds, once they’ve handed those funds over to the management of the company.
One year is a reasonably long timeframe for the founders and managers to show that the business can succeed. That it can produce the product as promised. That customers will pay for that product, etc.
Meanwhile, as a founder, there is an incentive for you to raise no more than a year’s worth of funding. The incentive is that the value of your company rises as you bring a product to market, add customers, and earn revenues. The higher the value of your company, the higher the price per share. With a higher price, investors receive fewer shares for a given amount of money, leaving you with a larger percentage ownership.
Thus, between the investors’ desire to lessen risk and the founders’ desire to maximize value, funding typically comes in twelve- to eighteen-month increments.
