At Shearwater we often say to founders that if there’s strong demand for your round, that’s the best time to raise *less*. The demand lets you tap into extra funds later, when the valuation of your business is likely to be higher.

The thinking here rests on our deep desire for founders to maintain as much equity as possible in their business.

Too many founders end up at their liquidity moment with not enough share in the upside they have built over many long, hard, emotional years.

One reason this happens is that they raise capital inefficiently. That is, they raise too much when the value is not as high as it will be in the future. Of course, sometimes the business needs the capital and it’s a wise decision for the company.

But other times, it’s the consequence of a founder letting the business model of a funder impact on their own business model.

That is, the business model of a funding source is to get as much equity in a business for the least cost (more or less). And there are many voices singing the praise of raising a bit more than is needed, giving a little extra buffer, or runway. Sometimes this is wise, but it needs tensioning against. Because the business model of a founder is the exact opposite.