In parts 1 and 2 of this series, we discussed some of the basics of venture capital finance, including the differences between debt and equity (and that tried and true hybrid the convertible note) and the fundamentals of dilution and valuation. Let’s close it out with some practical advice.

Rule #3: Know How Much Money You Need (then multiply by 3)

There is an old saw that you can never raise too much money for a new venture.While there are important exceptions to this rule, the principle remains sound. Invariably, it takes longer to reach cash flow breakeven than expected. Penetration of new markets with unproven products and new technolo¬gies that require changes in consumer behavior is exceedingly risky business. A myriad of factors – most of which you will not foresee – will arise to take the company off of its revenue projections.

This "uncertainty factor" is the single most significant issue faced by emerging compa¬nies and their investors. Adaptability and staying power are critical to survival dur¬ing the early stages as you cast about for that "killer app" and that ever-elusive "ref¬erence-able" customer. So be sure to build in a significant reserve to your anticipated cash needs for the "uncertainty factor."

Despite the uncertainty factor, "beware of VCs bearing gifts." Venture capital invest-ing does not take place in a vacuum. Understand that market forces affect VCs at least as much as entrepreneurs.There is a lot of liquidity out there and uninvested capital must be returned. So VCs want to put as much capital to work in good com¬panies as possible. Therefore, if your com¬pany is attractive to VCs, you must antici¬pate the possibility that they will want to invest more money than you need sooner than you can spend it. As to the effect of this phenomenon – see Rule #2. And finally,

Rule #4: Hire a Good Lawyer to Help You Navigate Rules 1 , 2 and 3!

Originally published September 30, 2014

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.