99% Derisible

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The point of capital
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The point of capital

When to raise and what to do first

Yoni Rechtman
Dec 14, 2022
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Share this post
The point of capital
99d.substack.com

Starting a company is a huge commitment to a single opportunity. You should only do it with due consideration, especially if you’re a high quality founder with a lot of other good options. Anyone who says otherwise is trying to sell you something (probably capital).

As soon as you raise a dollar, you’re locked in. Probably for years. You have to quit your job and start working on this thing full time. You have to start watching the clock on your runway. You have to explain to your family why they can’t go on that vacation this year.

But what if the idea is bad? Well at least then you can take the negative signal and shut it down quickly. 

Worse, what if it’s just good enough to tread water for years and get nowhere? What happens when you’ve hired not quite the right team,built not quite the tech, or targeted not quite the right customers? Well then you’re left pivoting into oblivion while your investors take the L and move on. They have nothing to lose and you only have your whole life at stake.

What if all that could have been avoided with a little more criticism, feedback, research, and planning?

Raising capital might “de-risk” the act of starting a company but doing it sooner won’t change the ultimate outcome and it doesn’t improve the odds of success on an insufficiently workshopped idea. 

As soon as you raise money you will start burning it. If you’re not generating EV from your burn, you’re destroying not creating value. And lots of stuff you have to do before you build a business neither requires capital nor generates value.

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You don’t need capital to:

  • Meet prospective customers

  • Talk to people in the space

  • Find folks who have tried and failed

  • Plan out the full story of the biz

  • Figure out the business model quality

  • Meet potential execs and early hires 

  • Make mock-ups

If capital neither unblocks nor accelerates the work you have to do then you’re just creating commitments. 

The early work in building a company has nothing to do with money. If it seems that way you’re likely skipping a step (or several). Yes, you’ll never de-risk a company entirely and the option value has diminishing returns as you explore the opportunity (eventually you need to quit or commit) but taking time to slow down and diligence an opportunity for a finite period will save you years of heartache. 

Remember, the real cost and risk is the opportunity cost of being saddled with a fundamentally flawed business and too much cash/expectations to shut it down quickly and quietly.


Thanks to Deva Hazarika and Will Quist (as always) for feedback.

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And if you're objecting that you wont start burning as soon as you raise 1) you’re wrong and 2) then you don’t need money. The only reason to have cash is to spend it.  

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