Why is fundraising a bad idea?

If the success of a start-up is often attributed to fundraising, some people think that raising money is a bad idea. It sometimes becomes synonymous with failure. It is true that fundraising allows you to obtain liquidity to accelerate your growth, whether through redemptions or simply multiplying teams, but it also has other consequences that should not be overlooked. A little detour to another method of fundraising.

1- Your liabilities will increase

When you raise money, you generally have to be accountable to your shareholders. This task is far from easy as they may ask you about statistics that you were not used to providing or measuring. If the work can be structured and help you grow, it is also time consuming. Before raising money, you need to keep in mind that you will spend time there, except to hand it over to a specific person. This new time allocation has to be estimated. Your decision-making may take longer because you will often have to do so within the framework of new articles of association, or even a shareholders’ agreement. The terms of the meeting can thus change completely, especially if you were the only shareholder. Getting a majority may be even more difficult.

2 – You can become a minority

This is rare when raising funds for the first time, but it can happen. It is common practice to keep the majority until the second or third fundraising. In this context where you will lose majority, it should be understood that you will no longer necessarily be the one to decide the future direction of the company. Decisions that you don’t like can be taken, even your dismissal, as has happened in many companies. In some cases, you will have to persuade others in management to make decisions when they are not current and may not know the specifics of your field.

3- You can go in the wrong direction

This is the most dangerous point of fundraising. There are many entrepreneurs who no longer want to work in the interest of the company but in the direction of profits for the shareholders. You need to keep in mind the difference between short or medium term interest and long term interest. Fundraising sometimes affects the company’s strategy in the sense that you will try to maximize profits or you will take a direction that you would not necessarily have taken without your fundraising. This is why many entrepreneurs are slow to fundraise in order to stay the course and be good.

4- You can raise money very quickly

There are many examples of companies that raised money and crashed right after. Raising funds often involves intensifying the strategy put in place. If a strategy may work well on a small scale, then on a large scale it may not work as well or your projections may be overestimated. This burns cash quickly and you may have recruited too many people without reaching the expected numbers. Expenses can escalate quickly and get out of your control. Because what is called acceleration, it says that you have to make fast decisions, especially with regard to investments.

In contrast, not having money too early and therefore raising money later, has the advantage of allowing you time to test different options and learn the needs of the company before setting them up. So you can invest in what really works when the time comes. It also makes you frugal and avoids spending randomly when money comes in. Otherwise, you may quickly not know where the money goes and end up with expenses you would never have incurred without the money.

Related Stories


Zen by LegalStart: An anti-scam shield for entrepreneurs

Created almost ten years ago with the aim of simplifying and digitizing the legal...

social network, an opportunity

Social networks have invaded our world. Facebook, Twitter, LinkedIn, YouTube, Pinterest, Instagram... and...

Self-employment in France: revival of activities and income

At the end of 2021, France will have no less than 3.9 million self-employed...

fundraising fashion

Fundraising has become a major trend in the business world. Whether promising startups,...

Ten Mistakes Entrepreneurs Shouldn’t Make

Almost every day, we learn that new laws are coming,...

Which tools for more efficient management?

There are many responsibilities involved in managing a DSI (Department of Computer Services). ...

Popular Categories



Please enter your comment!
Please enter your name here