Should You Seriously Raise $1M or More in Seed Money Or Just Stop?

Lots of variables go into this. But, the short answer is: no, unless you are in a category with a very high Minimum Order Quantity (MOQ), such as canned alcohol. 

You have to approach seed money psychologically: it has to be money you (and others) have already thrown away in their mind. Yes, you read that correctly. This can not be money you are worried about losing. One reason you might worry is that you know you could a) lose your home or b) go into personal bankruptcy.

You don’t need to have $1M piled up somewhere. 

But you do need to have a few hundred thousand. 

And one reason is that the initial inventory run(s) are your biggest expense. Storage and route-to-market costs are the next. Followed by any trade spend in retail. If you can avoid third-party distribution, excellent, but all these operating costs add up monthly.

$300-700K will generally allow that small initial inventory to cover fixed operating costs for 3-6 months before you get paid by retailers or distributors. It also helps cover losses due to the initial distributor invoices when the most considerable % is taken out for onboarding fees. 

Never buy inventory until you’ve forecasted the next 6-12 months of cash burn due to fixed costs and variable costs of selling (e.g., brokerage fees, trade monies, etc.)

That’s my take.

Dr. James Richardson

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