3 negative consequences of raising too much money in a financing round

3 negative consequences of raising too much money in a financing round - tinoshare.com
3 negative consequences of raising too much money in a financing round - tinoshare.com

In rounds of financing, usually there are two opposing positions: the businessmen and entrepreneurs, seeking thereby to obtain the highest possible volume of financial resources and, on the other hand, investor, looking to find bargains on the market, ie companies with a high growth potential at the lowest possible price.

Normally, depending on the expertise, negotiating power and eloquence of the entrepreneur, these rounds end up being favorable to the investor or, at best, can end in a draw; but in some cases, companies end up attracting more capital than planned to get at first . However, contrary to what might appear, asking for more money than you need may turn out to be counterproductive, for three main reasons.

First, because the fact seduce a lot of investors willing to invest their capital in our company can dilute our participation in it , to the point to lose control of the company in this or in several subsequent rounds. If a lot of investors become part of the board with a large stake in the firm, our decision-making capacity will be much lower, jeopardizing the purpose for which the company was incorporated.

Second, because the increased value of our company may pledge a future sale of our startup. If, in addition, our board of directors has been taken over by foreign investors, some partners may refuse to sell or, if so, executed clauses such as liquidation preference . Keep in mind that most investors have more experience than us in the business world, and this is more than enough for us to be cautious in deciding who gets in our company right.

Finally, because the more money we have, the more temptation there will be to squander or manage inefficiently. Consider that, although funding rounds have helped us to get the resources we needed, we must prevent future if they come wrongly made.

In short, so negative it is to capture little money as capture more than we need in funding rounds. To avoid such problems, we should go with a definite objective in advance in order to avoid future problems in managing our company.


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