The Benefits of Raising Institutional Capital

All startups has several clear risks, and these are:

1. Product development (also called finding product-market fit)
2. Acquiring customers
3. Competitors

There’s a clear strategic advantage based on who you raise money from. For example if you sell a b2b product, it would be ideal to raise money from the enterprises that want to use your product. These investors can provide feedback and help direct product development. They form your initial customer base and can help with word of mouth marketing. Since they are the primary users of your product and vested in your success, they will be on the lookout for competitors, alerting you of their existence and helping to keep them at bay.

When used in this fashion raising money can be used as a tool to erect a barrier of entry for new entrants.

Then there is also the extra influx of cash. If you already have a solid product developed, injecting a ton of cash into sales and marketing can help you get big fast. You can quickly take market share and establish an even stronger barrier against competitors because customers often incur switching costs once they already use your product.

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