3 Reasons Entrepreneurs Should Raise Money -- Even When They Don't Need the Cash
One of India’s most dynamic and successful entrepreneurs, Bhavin Turakhia, announced this week that he's just raised a sizable investment round to grow his latest venture Zeta, which he co-founded with Ramki Gaddipatiin 2015. The investment from French facilities management company Sodexo now values Zeta at $300 million. It’s a strange thing for Bhavin to do because he doesn’t need the money and he has never raised investment for any of his previous ventures.
Bhavin, 39, has built multiple companies without raising any external investment. He started out as a teenager with just a $375 loan from his family and is now a billionaire with more than enough money to fund his own ventures. In a previous article, he gave me four reasons not to raise money unless it’s absolutely necessary, including his belief that having too much money kills creativity and creates a sloppy culture that loses focus on creating real customer value.
So why then would he be raising money for his latest venture when he’s already worth over $1 billion? I caught up with Bhavin to ask him why he changed his mind this time. Here are the three big reasons he shared with me:
1. Raise money to build strategic partnerships.
When Bhavin speaks to entrepreneurs, he recommends only raising smart capital or strategic capital. “Smart or strategic capital can outweigh the value of the investment itself,” says the serial entrepreneur.
"Zeta's investment capital was injected by our strategic partner Sodexo. Sodexo operates across 80 countries with over 80 million users and the investment brings with it the opportunity for global business. Since 2017, Sodexo has been a strategic partner of Zeta and with this relationship, we can extend our partnership in many countries in which they operate,” explains Bhavin.
2. Raise money to validate your valuation for employees and acquirers.
When businesses exit for large amounts of money, they typically have proven their worth along the way. “An external valuation validates the shareholder value of what you have created, helps to attract talent and establish credibility,” says Bhavin.
Another important reason to establish valuation is that the employee shares or options become more enticing when the valuation has been proven. If an entrepreneur says their company is worth $300 million people may or may not believe it. But when a respected investor backs that number, everyone can see their shares are really worth something.
3. Raise money to diversify risk and maintain the entrepreneur’s mindset
After his initial exits (totaling more than $1 billion), Bhavin had to adopt a new persona -- an asset manager.
"As an entrepreneur, you take on risk, you believe whole-heartedly in the potential of your company and you passionately sell the vision to anyone who will listen. However, as an asset manager, it’s not advisable to put all your eggs in one basket,” explains Bhavin.
If an entrepreneur puts too much of their own money into a venture, they start thinking more like an investor and less like a visionary. Instead of dreaming up new ways to grow, they can become overly-focused on avoiding risk.
Conversely, when smart investors and dynamic entrepreneurs find alignment there’s a great chance that they’ve struck the right balance of risk to reward. It’s very hard to simultaneously play both roles and find that same balance.