Four reflections on money:
First, when exactly should you raise money – try to raise as much money as possible when others are optimistic about you.
There were four rounds of financing, including smooth and mistakes, but all of them added up to none of the mistakes made in the 2014 Series C round. In 2014, the easy-to-reach Series C financing was very smooth, and as soon as I went out, many people chased after it, saying that they wanted to invest, and more than once or twice. However, at such a good time, Yi da could have received $300 million in financing, but for various reasons, it ended up with only $100 million. Only 3 months after the completion of the C round of financing, the opponent successfully completed the largest financing in the history of global private equity, and everything has changed since then: others can say that their understanding of Yidao is very clear, the conditions given are very harsh, and people do not know whether to give financing. When the development of enterprises is difficult, it is almost impossible to raise capital. When the company is in a poor situation, it is often half the work, not only the process is difficult, but the price paid will be very large. At that time, it was extremely difficult to go around, and the whole state was very passive.
Therefore, seize the best time to hurry up and raise funds, because only at that node, everyone is looking forward to you positively, thinking that you will be better in the future.
Financing is actually a matter of life and death. The vast majority of startups, with the exception of a very few like KB, who have died of policy problems, have died because they have no money. No money will die, and money will die.
Second, exactly how much money should be raised – not based on valuation.
How much money can be raised is not determined by the valuation, that is to say, the money raised from the low valuation is not necessarily less, and the high valuation may not necessarily be more financing. What really determines the size of the financing is your core business needs.
Financing, not only for the cost of the business, but also to consider the worst-case scenario, to foresee how much money you will need to face competitors. Financing is not a matter of ability, but the plan and goal of financing should prepare for the worst situation, even if it is possible to sell some equity. At this point, I have to say that Zhang Xuhao, the founder of Hungry Mo at that time, thought very clearly. He dared to use a valuation of $400 million to raise $300 million in capital, diluting his large amount of equity. In the past, everyone had some habitual thinking patterns and routines, generally each dilution of equity will not exceed more than ten percentage points, and the maximum is 20 percentage points. Zhang Xuhao jumped out of this thinking limitation and did not play cards according to the routine.
Therefore, to start a business in the Internet industry, you need to remain constantly sensitive to competition. In the face of competition, you can't take chances, because it is an important factor that you must consider in financing, because it will probably become the worst situation you will face in the future.
Third, how to spend money - more and less.
After financing capital, the most common mistake is actually: desperately expanding enrollment, running advertising, and crazy subsidies in the business. There may be nothing wrong with this, but you can't spend money for your own imagination, be self-righteous, and start implementing it without verification. At this time, it is more important to "boldly assume and carefully verify." When we can't judge a thing, it is best to test it on a very small scale, rather than holding a fluke mentality to fool ourselves, for example, thinking that the single-store model is established, and the cost of customer acquisition will be low. So think about it a bit more, is your hypothesis still valid until it actually scales? Competition is coming, the external environment has changed, and your hypothesis is still not valid?
Therefore, any model should be spent very carefully before it is verified, and it is best not to spend a lot of money. Entrepreneurs have to prepare for the worst if they don't have money. If you don't have money, you will start with personnel and cut the budget, but it is easy to expand, but it is difficult to lay off employees. Expansion does not necessarily increase morale, and layoffs must hurt morale. Companies need to be cautious in recruiting people, the more people are recruited, the more management problems there are, and we should keep the company under as little management load as possible. Therefore, it is necessary to melt more and spend less. When financing money, try to raise as much as possible, and you can't spend it blindly when you spend money. As long as you have money on your account, you won't "die."
Fourth, how to look at valuations – don't be manipulated by them.
Entrepreneurship itself has great uncertainties and risks. When the risk is obviously bullish, investors will have a wait-and-see mentality. If you don't shoot, this is the duty of others; to help you, that is the love of others. No one should vote for you, and whoever votes for you should thank people for their trust.
Financing is just a number, it doesn't mean you're worth that much money, and it doesn't mean you have so much money. If you meet 100 investors, 90 of whom do not invest in you, this is normal, do not have to deny yourself, there is no need to satirize the investors who did not invest in you at that time when it was finally done. None of these things make sense. Another point is that often because of the entrepreneur's own vanity, he hopes to become a unicorn, or how many places the market value ranks, so he will pay great attention to valuation. But I often see startups that have a difficult next round of funding because they have too much financing and are overvalued. So that's not necessarily a good thing.
People often think that a low valuation will suffer losses, in fact, as long as the business is done well, you can do whatever you want. Valuation doesn't make much sense, but for many entrepreneurs, valuation is like a demon, always involuntarily controlled by it.