fundraisingWe are making social network, B2C product, at what stage is it a good time to start raising money?
How should we calculate this stage? By monthly active users? By total registers? By amount of posts? (It is something like instagram)
Firstly, this Chinese proverb comes to mind:
“The best time to plant a tree was 20 years ago. The second best time is now.”
Fund raising is the kind of thing you never want to be thinking about as “I should have done this earlier.” If you feel you will be, you should immediately start doing so.
Secondly, and as noted by Daniel, the rule of thumb about raising money is that you’ll get a much better deal if you don’t actually need it. So look for some before you begin to run out of it.
Thirdly, keep the VC’s business model in mind. They’re into “invest in entrepreneurs with a reasonably sane, and highly scalable business idea.” To justify their 2/20 fees, they need to weed out the crazy and unproven, but they additionally need their investments to occasionally yield a 20x return or more. As such, a “lifestyle business” which is cool and breaks even but won’t grow fast will not interest them.
Fourthly, similarly keep the bank’s business model in mind. They’re in the “invest in entrepreneurs while taking the least possible amount of risk” business. And they actually like “lifestyle businesses” very much, and are perfectly happy funding them provided they make money.
There are, naturally, exceptions and oddities both on the VC and the bank fronts, but that should sketch out a rough idea of where you can expect to get money from.
With respect to calculating the stage, there’s no magic formula.
In the bank’s case, though, things are easy enough: it’s when you’re on the road to profitability and have the figures to show for it.
In the case of the VC, it depends on the stage you’re in. In earlier stages, it’s when you’ve reasonably convincing evidence that you’ve a scalable business model that can earn you a profit.
Before you are desperate for it, so you have more leverage with investors.
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