Why do you want to raise money?

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Hey Shifters!

Every week, I get questions from founders convinced they must raise VC for their companies. Every time, I ask one simple question:

“Why do you want to raise?”

The usual response is: "I'm raising to hire engineers and build our product."

I cringe every time I hear this response to the question. Not because it's wrong to want to hire or build but because it misses the point of fundraising entirely.

Fundraising is about proving to an investor that the only thing between where you are today and where you want to be is their money. It’s about demonstrating that you will take their dollars and reach your next milestone.

It took me about 20 fundraising meetings to figure out how to do that for Chezie.

My Early Fundraising Mistakes

My pitch was simple when I started raising money: We'd built an MVP, grown to seven customers and $100K+ in ARR, and needed money to hire engineers to move off our no-code platform.

It sounds solid, but like most of the founders I speak with, nowhere in that statement do I tell the investor what return she’ll get on her investment.

It took those 20 failed meetings to understand how fundraising works. It's all about stages. A pre-seed investor writing a check at a $5M valuation needs to believe you can raise your next round at least at a $10M valuation. That increased valuation is enough for the investor to show her LPs (limited partners, those who invest in venture capital funds) that she’s made a solid bet. If her LPs believe she’s making solid bets, they’ll give her more money for her next fund.

So, your job as a founder is to demonstrate that you’ll be able to use the money the investor has given you to raise another round of capital at a higher valuation.

Once I understood this, our pitch changed utterly. Instead of talking about hiring engineers, we talked about growing from $100K to $750K ARR – a milestone that would justify us raising our seed round at least a 2x valuation.

(Note: the above scenario is specifically for venture capital investors. Angels or more patient investors would want to know that their money will get you to an exit)

Fundraising Will Not Solve Your Problems

You should only seek funding to fuel a fire; never seek funding to get a fire going.

Read that again.

So many founders I speak to think they can magically start selling and/or building their product once they get funding.

So many founders I speak to think they can start selling and/or building their product magically once they get funding. Here's what happens when you raise money before solving fundamental business problems:

1. Marketing Problems Get Expensive, Not Better

   Raising money with product-market fit leads founders to burn money on expensive go-to-market channels without proof that they’ll convert. More money means bigger budgets to test everything instead of finding what works and seeking funding to do more of it.

2. Product Problems Get More Complex

   Raising money leads you to hire a big, fancy engineering team and build the most significant, feature-rich product possible without drilling down on the core thing your customers are buying your product for.

3. Sales Problems Get Masked

   Raising money and working with investors will push you to hire a sales team before you need to. Hiring a sales team only makes sense once the founders have figured out how to sell, and only at that point do they hire a sales team to grow that process and improve upon it.

If you can't figure out how to get in front of customers or position your product, money won't help. It'll give you resources to throw at random channels while adding investor pressure and artificial timelines.

The best businesses started with constraints in italics. If you think you need to raise to build products or sell to your customers, you're wrong.

A Tale of Two Reasons for Funding

I had a conversation with a founder last week that inspired this post. When I first asked him why he wanted to raise, here’s what he said:

Classic response. He continued by explaining that a good go-to-market channel is attending conferences. When I pushed back on that (conferences are expensive, so using that as your GTM in the early days is a costly path to early customers), he got much more specific:

See the difference!

He's explaining exactly how the money will be used and why he needs it. The only thing he’s missing is a clear explanation of where his funding will take him, and he’s all set.

Crafting Your Raise Statement

Here's a simple template for explaining why you're raising:

"I'm raising [amount] to [do thing 1, thing 2, thing 3], so we can reach [milestone]."

For example:

"I'm raising $500K to hire two contract developers to rebuild our product from its MVP state. With a revamped product, we'll be able to onboard 50 customers from our waitlist and grow revenue from $50K to $750K ARR."

Notice the difference:

• ❌ Bad: What you'll do with the money

• ✅ Good: What the money will help you achieve

The Bottom Line

If you can't clearly articulate what milestone(s) you’ll hit with your fundraise, you shouldn't be raising. Period.

Money adds pressure, expectations, and timelines to your company. Ensure you're raising for the right reasons, not just because "it's what startups do."

Would love to hear from founders who've raised: what milestone were you trying to hit with your raise? Please reply to this email and let me know!

See you next week,

Toby

P.S. If you're considering raising and want feedback on your "why," hit reply. Happy to help!