It completely depends on the nature of the business and industry.

It is important that the founders time the fund raising well and ensure that they do not raise funds too early, thereby diluting too much shares and neither do they delay it too much, thereby hampering the growth and existence of the business itself. It may require giving up some control of the business, sharing profits with the investors, and making other concessions. Additionally, taking an external investor may not be the right choice for every business. It is important to understand the benefits and risks associated with bringing an external investor before making a decision.

Founders should consider raising external capital for a business that needs funds to grow or to reach a significant milestone. When a product has earned a place in the market, and there is a clear demand for the product or service, more capital is needed for the growth of the business to increase its reach among the potential customers.

Ideally, the founders should manage with their own resources as much as possible, so that they can prove the model as well as show scalability, thereby ensuring that they raise funds later at a much better valuation. The ideal time to raise funds is when the startup is scaling a proven business model with a unique idea in the market. The startup needs to have enough runway while having a clear and well-systematized track to generate funds.

Raising funds from an external investor would mean obtaining more capital or access to better credit. An investor can provide these things if they believe in your business and its potential for growth. They can also bring in other resources, such as their own expertise and connections, which can help you expand your business and reach new markets. One of the biggest downside of raising external funding is that it can dilute your ownership stake in the company. It’s important that the founders plan the process and the timing of the fund raise well.

Founders should fundraise as late as possible to give the startup a chance to survive the initial state of flux, and to know themselves and the business better. While this is not always possible due to financial constraints, founders should self-finance at least the initial stages of achieving a product-market fit.