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30-Second MBA

Michael Staton: What funding do you take and what do you pass?

"The first thing you need to decide when you're taking venture capital is whether you need capital at all. VCs look for an exit five to twelve years after they make an investment so you need to be comfortable exiting the business in that kind of timeframe. If you are comfortable, if you're building a scalable business that you're comfortable with exiting, the rule of thumb is: prior to market fit, pre-market fit, you want about eighteen months to two years of runway for your founding team, a few additional hires, and some professional services to be able to indentify a scalable business model and to achieve product market fit. Once you have achieved product market fit and you are scaling, then you want to raise what's called a scaling round. Then you go out and you pitch again, this time with an actual business model and you want to raise again, rule of thumb if eighteen months to two years of capital, according to your then-business plan. There's also a rule of thumb that you should ask for double of what you think you need because you're going to end up spending way too much money and more time than you think and the last thing you want to do is be out of capital. Of course you also want to construct a round in which you have multiple bidders and you get multiple term sheets. And you want to take of course the most value-added venture capital possible. Of course, many people think that venture capital doesn't add any value besides the money, but you should be able to find some VCs that can add value and take money from them." —Michael Staton

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