Do You Actually Need to Raise Capital?
Most of what I write starts somewhere inside an idea and lets you find the structure as you go. This one is going to be different on purpose. Raising capital is the question I get asked more than almost any other, and it’s also the question founders answer the worst, because they treat it as one decision when it’s actually four stacked on top of each other. So this week I want to walk through it properly, in order, the way I’d actually walk a founder through it if they sat down in front of me and asked whether they should raise money.
The first thing worth separating is why you think you need the money, because there are really only two categories, and few founders have ever honestly sorted themselves into one or the other. There is money to fix a problem, and there is money to fuel growth, and they are not remotely the same decision even though they often arrive at the same conversation with a bank or an investor.
Money to fix a problem shows up when cash is tight, margins are thinner than they should be, or the business has grown into a shape that can’t sustain itself without an injection of capital just to keep functioning. The instinct is to treat this as a financing problem. It almost never is. If your business needs an external injection of cash just to keep the lights on, the actual issue usually sits somewhere in the model itself: in pricing, in cost structure, in how the business converts revenue into cash. Raising money against that problem doesn’t solve it, it only funds it for a while longer. I have watched founders raise a round, breathe a sigh of relief, and then run into exactly the same wall eighteen months later, except now with a board seat attached to it and considerably less room to manoeuvre than they had before.
Money to fuel growth is a completely different proposition, and it’s the one that actually makes sense for the founder-led businesses I tend to work with. This is capital raised against something that is already working. You have proof that a dollar spent on sales and marketing returns more than a dollar back. You have a partnership opportunity that would meaningfully extend your reach if you had the resource to pursue it properly. You have an acquisition in front of you that would compress years of organic growth into a single transaction. In every one of these cases, the money isn’t rescuing anything. It’s adding fuel to a fire that’s already burning well on its own. That’s the test I’d encourage you to apply before anything else. Are you trying to put out a fire, or are you trying to make a good fire bigger? If you can’t answer that honestly, you’re not ready to have a conversation about capital yet. You’re ready to have a harder conversation about the business itself.
There’s a second evaluation that founders skip almost entirely, and it isn’t financial. It’s about what you’re actually giving up. The framing that catches people out is the idea that because the money isn’t yours, it’s somehow free. It isn’t. The moment you take on capital, whether that’s debt with covenants attached or equity with a board seat attached, you are trading some amount of autonomy for it, and the size of that trade is usually much larger than founders expect going in. If you’ve bootstrapped your business, you’ve been operating with a level of control you’ve probably stopped noticing, because it’s simply how things have always been. You decide what happens. Nobody else has a formal say. The day you bring in outside capital, that changes, sometimes by a little and sometimes by a great deal depending on the structure, and you need to know which one you’re walking into before you sign anything, not after. Sit with that honestly rather than assuming the upside of the capital automatically outweighs the cost of what you’re handing over, because sometimes it does and sometimes it really doesn’t. The only way to know is to actually think it through rather than feel your way to an answer under pressure.
There’s a related point that matters just as much as anything I’ve said about debt or equity: it’s about who you actually choose to take the money from. I’ve sat with more founders trying to repair a relationship with an investor than I have helped people raise money in the first place, and almost every one of those situations traces back to the same root cause, a clash of values or a disagreement about direction that nobody surfaced properly before the deal closed. Once the money is in the business, the problem is rarely the money itself, but rather the person or institution behind it. Once you’re fighting with the people who backed you over what the business should become, that fight becomes the most expensive thing happening inside the company, more expensive than almost any operational issue, because it consumes attention that should be going into growth instead. The early stage of any capital relationship tends to look easy: everyone aligned, everyone enthusiastic, the term sheet feeling like validation that you’re onto something that’s actually working. What matters far more is whether you can picture that same relationship three years in, when growth has stalled for a quarter or two and there’s a genuine disagreement about what to do next, not just the version of it that exists on signing day. I’ve seen businesses damaged badly enough by the wrong partner that they didn’t recover, which is a considerably worse outcome than staying smaller for longer with the right one.
There’s one obvious exception to most of what I’ve just said, and I don’t want to skip past it, because plenty of people reading this are building something in technology or in AI, and the rules genuinely are different there. You’ll sometimes see a business with relatively modest revenue carry a valuation that looks completely disconnected from its current profit. That valuation reflects a model of how much cash the business is capable of generating in the future once it reaches scale, built and argued by someone who has convinced investors the path from here to there is credible, rather than anything sitting on the accounts today. That is a legitimate basis for a valuation, and it’s exactly why certain categories of business raise heavily before they’re anywhere near profitable. It’s also genuinely high risk, and it has arguably become more so over the last decade rather than less, even with how much more accessible technology has become through AI. Tooling is cheaper and talent is more available, and yet tech valuations broadly have come down significantly compared to where they sat ten years ago, because the market has grown more discerning about which of these future cash flow stories it actually believes. For founder led businesses with solid, current profitability that haven’t raised capital extensively, this isn’t the model to copy. Borrowing the playbook of a venture backed technology company will usually cost you more than it gives you. Know which game you’re actually playing before you adopt someone else’s rules.
Once you’ve genuinely established that raising makes sense, growth money rather than problem money, eyes open on what you’re giving up, the next decision is what kind. Debt and equity solve different problems, and choosing between them on cost alone is how founders end up with the wrong one.
Debt is borrowed money you have to repay regardless of how the business performs, usually with interest and often with covenants that restrict what you can do while it’s outstanding. The advantage is that you keep all of your ownership. Nobody sits on your board because you took out a loan. The cost is that the obligation doesn’t care whether your growth plan works. If revenue dips and the repayment schedule doesn’t move with it, debt can turn a temporary setback into a genuine crisis, which is exactly why I’d be cautious about using it to fund anything other than a plan you’re genuinely confident in.
Equity works differently. Someone buys a piece of your business in exchange for capital, and rather than expecting it back on a fixed schedule, they’re expecting a return when the business eventually sells or reaches some other liquidity event. The capital flexes with you, so if growth is slower than planned, nobody is calling in a repayment. What it costs you is part of the thing you built, and depending on the structure, likely some control alongside it. The right way to think about this isn’t which one is cheaper. It’s which one matches the risk profile of what you’re actually trying to do. A highly predictable growth plan tends to favour debt, because there’s little reason to give away ownership to fund something you’re already confident will work. A plan that carries meaningful uncertainty tends to favour equity, even though it costs more in the long run, because it doesn’t create an obligation that exists independently of how things actually go.
The last piece, and the one founders consistently underdo, is preparation. Whether you end up talking to a lender or an investor, you’re walking into a conversation with someone whose entire job is evaluating businesses like yours for a living, and the gap between a founder who has prepared properly and one who hasn’t is obvious within the first ten minutes. What lenders and investors are actually assessing isn’t only whether the opportunity holds up. It’s whether you understand your own business well enough to be trusted with their money. That means knowing your numbers cold, having a clear and specific use of funds rather than a vague growth narrative, and being able to articulate exactly what changes for the business once the capital is in place. It’s precisely why I built “The Perfect Pitch Deck”, because the discipline of putting together a proper pitch deck forces you to answer all of these questions before anyone else asks them, and founders who go through that process arrive at the actual conversation considerably more prepared than those who didn’t bother. If you’d like a copy, please send me a DM.
The question I get asked is always some version of should I raise capital? The better question, the one that actually determines whether it works out well or badly, is what you’re using the money to do and who you’re choosing to do it with. Get that order right, and the rest of the decision, debt or equity, on what terms, becomes considerably easier to make.
What capital never does, no matter how much of it you raise, is change what’s already true about the business. A good model gets better, faster, with the right capital behind it. A flawed one simply fails faster, with more people watching and more money lost when it does. Raising capital doesn’t create clarity about your business, it removes the luxury of not having any. If you’re not entirely honest with yourself about what’s actually true before you take the money, the money will make sure you find out anyway, on a far less forgiving timeline.
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