13. Raising Too Much Money

It's obvious how too little money could kill you, but is there such a thing as having too much?

Yes and no. The problem is not so much the money itself as what comes with it. As one VC who spoke at Y Combinator said, "Once you take several million dollars of my money, the clock is ticking." If VCs fund you, they're not going to let you just put the money in the bank and keep operating as two guys living on ramen. They want that money to go to work. [6] At the very least you'll move into proper office space and hire more people. That will change the atmosphere, and not entirely for the better. Now most of your people will be employees rather than founders. They won't be as committed; they'll need to be told what to do; they'll start to engage in office politics.

When you raise a lot of money, your company moves to the suburbs and has kids.

Perhaps more dangerously, once you take a lot of money it gets harder to change direction. Suppose your initial plan was to sell something to companies. After taking VC money you hire a sales force to do that. What happens now if you realize you should be making this for consumers instead of businesses? That's a completely different kind of selling. What happens, in practice, is that you don't realize that. The more people you have, the more you stay pointed in the same direction.

Another drawback of large investments is the time they take. The time required to raise money grows with the amount. [7] When the amount rises into the millions, investors get very cautious. VCs never quite say yes or no; they just engage you in an apparently endless conversation. Raising VC scale investments is thus a huge time sink—more work, probably, than the startup itself. And you don't want to be spending all your time talking to investors while your competitors are spending theirs building things.

We advise founders who go on to seek VC money to take the first reasonable deal they get. If you get an offer from a reputable firm at a reasonable valuation with no unusually onerous terms, just take it and get on with building the company. [8] Who cares if you could get a 30% better deal elsewhere? Economically, startups are an all-or-nothing game. Bargain-hunting among investors is a waste of time.