From my response on the Yabbly Startup Survivor Challenge: What is the best advice you can give to a startup going through their first rounds of raising capital?

For a startup (to qualify for my own personal focus: a consumer-focused, pre-revenue, Internet or mobile-focused model) looking to raise their first chunk of funding, here are my key bits of advice:

1. Strongly consider debt financing. Under this model, there’s no need to establish a valuation, and the mechanism and paperwork are relatively simple. At the first institutional financing, your debt holders convert into an equity position, generally with leverage that recognizes their early risk (interest and discount).

2. Choose investors wisely. Limit the number of participants. Put a cap on how much capital comes from “friends and family”. Make sure your investors can help you in other ways (i.e. introductions, advice, etc.) besides capital. Finally, don’t invite investors who aren’t prepared to be comfortable if their investment immediately goes to zero.

3. Raise just enough. One of my former co-founders used to say “if you don’t know exactly what you need the funds for, don’t raise them”. At the same time, make sure the funds you raise will provide you with the runway and resource you need to get to the next level.

4. Be patient. Even where you have willing investors, give yourself as much time as you can to set up and close a round, as it will invariably take longer than you think/want.

5. Don’t be desperate. The best time to look for money is when you don’t need it, pure and simple. Connect with investors long before you need to ask for funding.

6. It’s OK to say no. I have turned away capital on only a few occasions. In one case, we walked away from institutional funding with great terms to continue our work on a shoestring with a bridge loan, as we had growing revenue. It turned out to be an incredibly lucrative decision for everyone.

Now get out there, and shake those trees!