This is the second in an occasional series of blogs for fledgling entrepreneurs\r\n\r\nIn my last entrepreneurial series blog I explained how to raise capital for your new company. \u00a0In this blog I\u2019d like to share my thoughts on when to raise capital. \u00a0Every startup goes through several distinct stages of development. Generally speaking, at every stage you want to raise just enough money to get you to the next phase. \u00a0Of course the amount of money you need, how you raise it and the exact timing will vary widely from company to company.\r\n\r\nWhile every startup is different, most tech companies pursue seed funding to demonstrate proof of concept, and seek subsequent rounds of financing to launch the product, scale the company and ultimately set the stage for an acquisition or IPO.\r\n\r\nProof of Concept Funding (Seed Funding)\r\n\r\nLet\u2019s start at the beginning and say you\u2019ve got a great idea for a new product. \u00a0You\u2019ve put together a small team and you\u2019re getting ready to start your company. For most startups, the first step is to raise enough money to demonstrate that you have a viable product, capable executive team and workable business plan. \u00a0The idea with successive rounds of funding is to knock down the risk factors, such as \u201cWill the product work?\u201d \u201cCan these guys build it?\u201d or \u201cWill anyone buy it if they can build it?\u201d Your seed funding should be sufficient to give you enough time to get past at least one of the big risk factors.\r\n\r\nIn the case of Wasabi, Jeff Flowers came to me several years ago with an idea for a new storage platform that would be faster and cheaper than anything on the planet, but he needed a year to build it and see if he could get it to work. \u00a0So we had to raise sufficient funds to get us through a full year of development. There\u2019s no point in securing seed funding if you\u2019re going to run out of money before you are able to prove out your concept and knock down that first risk factor.\r\n\r\nGo-to-Market Funding (A Round)\r\n\r\nOnce you have a demonstrable product you\u2019ll need to raise additional funds to commercialize it and bring it to market. You\u2019ll need to secure enough money to build up your development team, get your product production-ready and ramp up your sales, marketing and support organizations. \u00a0Having a working product (and maybe even some customer commitments) increases the value of your company, removes risks for investors and makes it easier for you to raise money. You\u2019ll need to demonstrate that customers care about what you\u2019re doing enough to buy it, use it and endorse it.\r\n\r\nGrowth Stage Funding (B Round)\r\n\r\nOnce you\u2019ve launched the product and landed some early customers you\u2019ll need to secure additional funding to scale the company. \u00a0At this stage, companies typically ramp up operations and bring in senior managers like a VP of Engineering, CFO, and VP of Operations who have experience running large organizations. \u00a0The timing of these hires is critical. You don\u2019t want to get ahead of the curve and bring on a high-priced VP of Sales until you have a viable product to sell. The risk factor that you\u2019re trying to knock down with your B round is to prove that your team can scale and grow a business.\r\n\r\nExpansion Stage Funding (C Round and Beyond)\r\n\r\nOnce you\u2019ve achieved some commercial success, you may need additional funding to get to cashflow breakeven. \u00a0Most companies eventually need to make money and demonstrate sustainability. Frequently this means broadening your product portfolio, expanding geographically, and enforcing financial discipline. \u00a0If all goes well, this round will fund the last stage in your company\u2019s growth cycle before an IPO or acquisition. It\u2019s not uncommon, however, for this process to take several rounds of funding. If things are on a good trajectory, the money will probably be there for a D and E round, etc. \u00a0Some companies take on mezzanine rounds or bridge loans to reach the finish line.\r\n\r\nRaise Money at the Beginning of Each Growth Cycle Stage\r\n\r\nInvestors value a company differently at each round. In a seed or A round they are likely to be focusing on the viability of the product: \u201cIf they build it, will anybody care?\u201d \u201cIs there a market for this product?\u201d \u00a0If they get past that concern, they are also going to ask themselves, \u201cIs this team capable of building the product and proving that it can be sold?\u201d If you successfully build the product and find a few early customers, the B round will be about competition and the viability of the business: \u00a0\u00a0\u201cWill this product be easy enough to sell that we can eventually build a big company and make a profit?\u201d Once you have proven that you can sell and deliver the product, generally the next stage is expanding the business to grow value. That\u2019s generally the reason you raise a C round and beyond. As your company moves from proof of concept, to early customers, to growth stage, you\u2019ll continue to build value, clear investor hurdles and remove risks.\r\n\r\n\r\n\r\nTiming is everything. It is important to raise money at the beginning of each growth cycle stage, after you\u2019ve knocked down some major risk factors and cleared a set of investment hurdles. \u00a0The value of your company is not going to rise in a straight line. It will take a stepwise uptick in value after each major proof point. By getting money at the right time, and securing the optimal funds to get you through the next proof point, you will always be selling stock at the optimum times and minimizing the dilution to the founders and earlier investors.