When you receive money from Venture Capital, the clock starts ticking

Many founders ask, “When is the right time to hire VC investors?” The specific answer to this varies by company, but I’m always sure to remind them that as soon as they receive money from Venture Capital, the clock starts ticking.

This is not only true for VCs, but also for angel investors. Once a founder takes on angel or VC investors, they are under certain expectations to quickly realize and grow the business.

For example, if you take too long to grow the next round, meet growth goals, and other expectations, it’s easy to be immediately dismissed as a failure. This schedule lasts about 18 months maximum, so if you’re not sure you’ll be able to meet your growth goals and stay on your expected funding schedule, you’re probably not ready to accept venture capitalists.

This pressure can change the way founders operate their businesses and can force them into potentially unhealthy incentive structures and mindsets. The purpose of venture financing is to capitalize the business to achieve stratospheric growth. VCs expect large returns on investment, so even a multiple of 5x at the exit can be considered a failure by their investors, who may be looking for 10 to 100x returns.

The purpose of this article is not to steer founders away from risk checks – quite the opposite.

There are good times to take on venture capital and there are times when you might be too early and bootstrapping makes the most sense. After all, investors love to see startups that have built the necessary foundation for the growth that VCs expect.

The message for founders really is this: Be calculated about when you decide to go down the entrepreneurial path. It is best to take your time in advance and enter these trades with the assurance that you will be able to meet the demands and expectations that come with venture capitalists at the capitalization table.