Investors are fond of telling entrepreneurs about how dangerous it is to raise too much money too early on. We advise entrepreneurs to minimize fundraising until they achieve product-market fit, and are ready for scaling up.
The problem is, entrepreneurs don't want to hear it. It's like telling Americans to lose weight by eating less and exercising more. It doesn't matter how right you are if you can't get people to change their behavior.
Therefore, rather than explaining the perils of down rounds and the benefits of being able to select your investors, let me boil it down to one thing:
When you raise a lot of money, you raise the degree of difficulty
If you raise a lot of money, you need to demonstrate major traction to raise more. After all, if investors have already given you $20 million, and you haven't taken off, another $20 million isn't likely to make a difference. And an organization that's big enough to spend $20 million is pretty expensive to keep alive.
In contrast, if you raise a little money, you can raise more money simply by showing promise. After all, if you're able to do this much on a shoestring, think of how much you could do with more resources!
In other words, raising money raises the degree of difficulty. The curve gets tougher, until only runaway success is sufficient.
Now it's always possible that you happen to have a startup that can't possibly succeed without a pile of money, yet can turn a pile of money into runaway success. But I (and your investors) probably don't want to bet on that.