No right way to raise funds. But it is essential to understand the tradeoffs.

Here’s 3 things I learnt from Jonas Eichhorst’s sharing. (Well actually 4 - the fourth is learning how to learn - no matter where we are, we should always try to learn 3 new things).

Think you are irreplaceable? Think again.

I found great meaning in how Eric Ries defined what a startup is:
“A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty”.

At its core, a startup, or even a tech conglomerate like Microsoft, is a human institution. And part of being human, is being mortal. It is easy to overlook this. It is easy to operate under the impression that tomorrow, we will still be around.

But life happens. That is why everyone should be replaceable. It doesn’t matter if you founded Microsoft, or if you’re a new startup. You should be replaceable.

An entire industry serves to hedge this risk of mortality - insurance. But it only gives monetary compensation. It doesn’t guarantee that the human institution will survive, especially if the human institution is entirely dependent on a person. You cannot replace his body with a pile of gold bars.

The solution then, is to design our institutions (and startups) such that everyone is replaceable.

Just how much?

Like many things in life, not everything is black and white. How much money to raise for a startup has no clear answer.

Jonas shared a rule of thumb for startups in the early stages - that we should seek to raise 12-18 months of runway. But calculating exactly how much we need in that timeframe is not so simple.

There is a myriad of factors, chief of which boils down to the question - what exactly are we going to do with the money?
Is there a business strategy that we are going to employ e.g. predatory pricing?
Is there an opportunity for us to gain an unfair advantage? E.g. government is going to give five digital banking licenses - so we need to raise funds quickly to triple down on our marketing and product development to position ourselves as one of the five most promising fintech startups who deserve the digital banking license.

There are just but a few factors. There are also other considerations like how much the founder should pay themselves that can (artificially) affect the runway.
As mentioned above, everyone should be replaceable. This includes the startup’s founder. The runway should thus reflect how much it would cost to replace the founder with a similarly capable body.

Raising funds can suck, but it’s important to do it right

Jonas shared how raising money typically takes 6 months, with the founder spending 50% of his time on it.
That is 3 months of time that his competitors could be using to outdo his business.

I fondly remember a talk by Ninja Van's CEO and cofounder, Chang Wen, where he shared (with a tirade of emotions) how he absolutely dreaded every second he spent on raising funds.
He found it so painful that he decided to raise more money than he needed, so he wouldn’t have to do this again.
I empathised with him and was convinced that it was the right decision.

But after learning from Jonas, I found Chang Wen’s decision to be misguided.
Firstly, by raising more money than he needs, he risks unnecessarily diluting his shares and that of his other shareholders.
Secondly, he also risks encouraging a culture of financial mismanagement. It is incredibly hard to resist splurging when you have a sudden windfall of 100 million dollars in your bank account.

However, I can see Chang Wen’s perspective that he can save time and focus more on building his business.
As I don’t have access to the entire context and the full inner workings of Ninja Van, I cannot say for certain that this was an incorrect move however.

It might really be that the benefits he reaps from raising more money outweighs the costs that come with it.
It really depends on the context. But what is certain is that it is important to approach raising funds with a thorough understanding of the tradeoffs involved.