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Comment by rokhayakebe | Hacker News Reader

The real problem is startups raise money too early. In my mind there should be two main reasons to raise money: 1) You have figured out a way to make $1 while spend less, and your data tells you you can do this x times over, 2) You cannot afford to pay for your servers or dev time due to customer growth. Can you think of more reasons?

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Since it takes a while to raise money, and since running low on cash can lead to a crisis, much fundraising is in anticipation of 1 or 2. But you're right, a lot of status do seem to raise money simply because it's what everyone else is doing.

In case #1, it doesn't take a lot of time to raise money. Collateralizing a bank loan against future revenue is a fairly pretty straightforward process, and the only "pitch" you need is (possibly audited) documentation of your free cash flow.

a) Bank loan is not an investment, not even a convertible debt.

b) Raising Money takes longer time than one imagine at first, especially at start when every available second is used for the development. All of a sudden, in the middle of the code server development, you have to stop your hacking works and author a 15-18 slides deck for an investor, that alone can take about a week.

You know, working on the figures, facts, and backing up your thesis. Sending it over to get reviews, meeting, waiting for answer.

It takes time, and it takes the most expensive time of yours.

You are suddenly stop working for the startup and start working for the investor(s).

In my mind there should be two main reasons to raise money

Seriously?

Try doing a startup with a hardware component without up-front funding.

There are plenty of business opportunities where spending is required before money is made, Google and Facebook being good examples.

Maybe in a world where you have disposable software products. But if you are developing something more complex, you can have a substantial period where you are developing science, technology and you cant bootstrap that on ramen when the people you might need to pay for it all can get real bucks elsewhere doing the same thing.

Then again, HN is very noddy-apps-oriented.

Amen.

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