Blog Friday Q&A

Friday Q&A: Should Early-Stage Startups Raise Money to Hire Developers?

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Every Friday, we’re answering your questions about business, startups, customer success and more.

Happy Friday!

This week’s question comes from Joshua, who asks:

Obviously there’s no blanket answer here that applies to all startups. But here’s my take.

There are things I would’ve done differently (and I’ve blogged about many of them), but raising more money isn’t one of them.

There are so many dangers to raising cash early on that I’ve seen materialize among friends.

One of the biggest is that there’s a really good chance that, like many startups, you may have to pivot to reach product/market fit. The investors who buy into your vision today might not love the thought of your new direction. A lot of people who think they want to invest in startups don’t truly have the stomach for what being involved in a startup really means, and they end up getting scared and becoming a distraction for the founder).

Dilution, too, is a very real de-motivator of founders and teams. You’re going to be paying a premium for capital when you’re still in the idea (or even prototype) phase, versus when you already have traction/‌customers and can get far more favorable terms.

It depends on your goals, too. For Groove, we wanted to build a sustainable long‑term business rather than a rapid ramp to acquisition. Going slow in the beginning and spending a ton of time talking to customers and refining the vision and product ended up being invaluable in the long run.

What do you think? Did you raise money early on? And do you regret it now or not? Let me know in the comments below!

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From “aha” to “oh shit”, we’re sharing everything on our journey to $10M in annual revenue. We’re learning a lot and so will you.

About the Author

Alex Turnbull is the CEO & Founder of Groove (simple helpdesk software for small businesses) who loves to build startups and surf.

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