Why You Should Avoid Overcapitalization (and How to Get Fundraising Right)

There is a lot of money flowing into private markets right now. According to CB Insights' most recent State of Venture report, venture capital financing more than doubled in 2021, to $621 billion, and there was a record 1,556 rounds of funding valued at $100 million or more.

As an entrepreneur, this bonanza of free-flowing capital might sound pretty great. So what if an investor thinks your business is worth more than it is? You've struggled to get your business to this point, why struggle more? Why not take as much money as you can while it's easy?

If you've been through it before, you learn the risks of overcapitalization firsthand. This is why, when my team and I founded Tercera, a growth investor for cloud and digital services businesses, we built it around former operators. We are very focused on helping our founders figure out the right amount to support realistic growth plans and the bumps that inevitably come along in a high-growth business, but also not so much that it distracts or demotivates people with unrealistic expectations.

Here are a few of our practical guidelines for founders looking to raise capital based on some of the lessons my team and I have learned over the past 20 years, featured on Inc.