It’s a question every entrepreneur will come across at some point: Should I raise capital or fund the company myself?
Drift CEO and founder David Cancel has confronted this question many times in the last 20 years. Cancel, who has founded five software companies and sold four, says entrepreneurs often take the wrong approach when raising capital.
His advice? Before you raise your first dollar, make your first hire.
“A lot of people try to get funding to hire someone,” he said in an interview for Fortune’s series, Founder Friday. “But they already failed the first test. If you couldn’t convince one person [to join your company], you wouldn’t be able to convince a firm to give you money.”
Raising money for his latest software messaging business, Drift, was easier thanks to his track record of building and selling companies in the past. Cancel, who is also an angel investor, advises that entrepreneurs ask themselves, “Am I willing to sell part of my company and give up control?”
If the answer is yes, he advises turning to friends and family or online platforms such as AngelList for the initial funding round.
For more fundraising insights, watch the video above and see how Cancel believes early-stage founders should spend their money.