When to take the seed – Answer the “knowables”

A question I often think about is when to take outside money. It can be tricky. Taking other people’s money, no matter from whom it comes, entails a set of risks and responsibilities. Furthermore, once you take money, your venture is “on the clock.” That said, ultimately you need to fuel the tank to accelerate the business, hire top talent and be legitimized in the eyes of prospective customers and partners.

So, the question becomes how to decide when to pull the trigger and raise seed money?

Before taking anyone else’s money, I like to identify the short term “knowables.” In other words, what key pieces of information can be understood in a matter of weeks or months with effort, without too much capital, and in most cases without leaving one’s primary employment. I think typical start-ups have a handful of knowables – say 3-6 key ones that can validate the business hypothesis. If you can’t think of any in the short-term or have too many, the business may be too risky. Most knowables should cost less than a few thousand dollars (if anything) and take no more than 3-6 months to answer.

As an example, a company I’m advising needed clarity around if/how its product would be regulated by government. (you may be thinking … talking to the government … that must take decades … not so!) First we ventured out to find the most capable regulatory advisor we could find with strong knowledge of the area. We contracted for a limited engagement and spent only a few thousand dollars. Amazingly, in just a few weeks, we had an email exchange with the exact people in government that will regulate this product and got the information we needed. While there remain long-term risks (unknowable’s), we now have information directly from government that clarifies our capital needs, timeline and data requirements.

There are many types of knowables. Some knowables are business development related. For example, some upstarts will want to know that they have a critical beta-test partner lined up from the start. Other short term “knowables” involve relatively straightforward web experiments that test customer adoption, web marketing tactics, click through rates, or pricing. 

I advise start-ups to answer the knowables before taking money. There are too many examples where a start-up took capital only to hit a roadblock that could have been identified early and cheaply.

One thought on “When to take the seed – Answer the “knowables”

  1. Thanks for sharing, Micah. Is there not a risk of a "knowables creep?" Once you get answers to the short term knowables you have previously identified, new ones may appear, or old distant ones may now seem within reach. The temptation to continue answering them will have to come head-to-head against the opportunity cost calculus.

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