Subscribe to Inc. magazine

Study: Raising Tons Of Money Can Hurt Startups

New research shows that raising less money early on can lead to a more lucrative exit.

When startups raise large rounds of financing from investors, it’s often praised in the press. And in Silicon Valley, founders are often encouraged to raise as much money as possible. But a new study shows that most startups shouldn’t strive to raise gobs of cash, and they can actually exit for more money if they take less funding.

Exitround, a startup that matches early stage companies with potential acquirers, analyzed the sales of 200 startups. It worked with startup accelerator programs Y Combinator, Techstars and SoftTech VC to compile the data and only looked at companies with sale prices under $100 million. Exitround says 88% of all startups are sold for less than that price. 

The study found that startups with the most lucrative exits raised either $2-3 million or $5-10 million. They also tend to be about four years old.

From the study:

In Exitround’s analysis, companies that raised $5 million to $10 million actually generated larger average exits than those that raised $10 million to $50 million. And those companies that raised $3 million to $5 million had a lower average exit price than those that raised $2 million to $3 million.

Here’s a chart that supports the data. 


Register on today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments

Or sign up using: