Fundraising can give your startup capital for growth, establish valuable partnerships, and provide your company with more financial stability — but it’s not always the right choice for every startup. In this article, you’ll learn what to take into consideration when deciding whether or not to raise capital for your startup. And should you decide that fundraising is the right move, we’ll also share with you the right first steps to take. Fundraising: Is it the right choice right now?Every startup begins by bootstrapping — whether the founders use personal savings to get the company going, or the business begins as a side gig outside day-job hours. But most will need to bring in external investment at some point, sooner or later. Very few businesses bootstrap all the way through to sale or IPO. Even Survey Monkey, which is a famously bootstrapped company, began raising capital almost a decade into the business. The right question isn’t “should we fundraise?”, it’s “should we fundraise right now?”. By and large, most startups — especially software startups — must raise funds so they don’t die. But let’s get clear on what fundraising is and isn’t. Fundraising is one way to raise capital. When we talk about fundraising, we’re mainly referring to venture capital, but VC is not the only way to raise money to fund your startup. (See All the ways to raise for more on this.) Fundraising is not the end all, be all for startups. It’s not the only important business milestone, and it’s not the only validation of a startup’s business idea. Most importantly, a successful fundraising round is not a sign of product-market fit or startup success. About 75% of companies that have raised venture capital still fail compared to the overall startup failure rate of about 90% — it’s lower but still not a sure sign of victory. Let’s take a look at the benefits and drawbacks of fundraising …Benefits of fundraisingIn addition to the benefits we mentioned in the intro (infusing capital into the business, creating more financial stability, and establishing partnerships), raising venture capital can: Increase your startup’s valuation. Securing VC funds makes your startup more attractive to future investors, and may spur more acquisition offers. Give you market exposure: The PR you get when you raise VC funds can draw media attention and drive awareness of your company and your solution. Help you build a high-value network: As you partner with VCs, you build a network of investors and advisors, who then extend their connections and expertise to your startup. Give you a competitive advantage: With capital to invest in people resources, technology and services, you may gain a competitive edge. Downsides of fundraisingWhen you raise funds through venture capital investments, you typically issue new shares to those investors — so you’re by definition diluting your ownership as a founder.  You’re also involving other people in your business decision-making — which is wonderful if you have the right investors, but can create a challenge if you choose the wrong investment partners.When do you know you’re ready to fundraise?So you’ve weighed the pros and cons, and you’ve decided that fundraising is the right move for your startup … but is now the right time? Before you answer that question, first make sure you understand what investors are looking for. Even if you have the greatest idea in the world, keep in mind that investors see a lot of great ideas. Good investors know that startup success doesn’t just stem from the business idea, but also the market, the team, and the execution.  If you have your eye on fundraising, focus on your financials, your customers, and signs of product-market fit. These factors will be important to potential investors as they assess whether or not your business will get them a return on their investment.  Once you do get into active fundraising mode, it often takes more time and effort than you think. Raising venture capital can be a full-time job in itself. (See the next article in our Fundraising collection, Creating your fundraising plan, for more on this.) So you need to account for that time and energy in advance. Make sure your business is as operationally efficient as possible, expectations are set for the team, and budgeting accounts for a possible loss in revenue if sales is primarily driven by you, its founder. When it comes to timing, there are two pretty clear-cut scenarios where actively fundraising now makes sense:Scenario A: When you need to extend your runway (pre-product market fit) Your situation: You have a business model that requires significant capital expenditure in a market segment with high growth potential / high TAM.  You may have already started your business, or you may be pre-product and pre-revenue. Either way, you’re building something that requires 18-24 months of runway before your business is able to bring in the profit needed to sustain itself.  This one is tougher to quantify in terms of a timeline, but in this scenario, you should keep a very close eye and pulse on financials — particularly your cash flow, burn rate, and runway — to understand how long you can go until you need cash. Remember, fundraising takes time: The latest you should be fundraising is when you have six months of runway left. In this scenario, you should also understand your worst-case scenarios and have safeguards and backup plans to reduce expenses and increase revenue to extend your runway for as long as possible. Scenario B: When you’re ready to scale Your situation: You’ve developed a product, have strong indicators of product-market fit, likely already have sales, and want to scale.  In this scenario, you don’t need money to keep going at the pace that you are. You need it to grow faster, whether that’s to increase your marketing spend, hire employees, build infrastructure or pay for inventory.  How much money should you be making before you go from pre-scale to ready to scale and fundraise? That depends. One suggested milestone is getting to $20k per month in revenue. Another suggestion from Y Combinator is $1 million in ARR (Annual Recurring Revenue).