How Much Should I Raise For My Business & When Pt. 2

Determining how much money to raise for your business is a function of several variables. Having more capital gives you more flexibility, but can be costly at early stages. Raising too little will leave you vulnerable to missing key milestones. The decision not only impacts the results of the business but your ownership of the business.

“Having more capital gives you more flexibility, but can be costly at early stages.”

Given all of these factors, the basic premise is that you should raise the sum of three amounts:

Amount Need for Key Milestone Achievement. as much money as your company needs to achieve the milestones you believe necessary to reach a significant inflection point in the value of the business.

Add for Six Months. at least six months to the amount of money you need for your next milestone to include time to go fundraising.

Amount for a Buffer. Build buffer for the inevitable mistake or two in either your estimations or execution –usually one to two quarters.

It’s important to have a realistic plan and a clear view of the meaningful milestones and resources needed to deliver on that plan. If you plan wisely, you will have a pretty specific amount of capital you know you need. Here are some considerations in doing so:

Ask for a Specific Amount – Not a Range. As an investor, it’s a big red flag during a pitch when the entrepreneur asks for a range of money (i.e.: “we are raising $5-$10M) vs. a specific amount, leaves the dollar amount open-ended, or says “How much do you think I will need?” If you can’t answer the question, you don’t really have any business running a startup.

What is a Milestone. A milestone is a quantifiable achievement, be it in terms of product development, team expansion, or market adoption of your company’s value proposition. Examples of milestones:

• shipping commercial product’
• acquiring a critical mass of customers or users to prove product/market fit
• filling out the core leadership team with “A” players.

Basis of a Financial Plan. A detailed plan and budget should yield answers to the three critical questions needed to determine the funding required to hit key milestones:

• What resources (people, equipment, services, etc.) are needed to deliver the milestones?
• How much time, given those resources, is needed to deliver the milestones?
• How much capital is needed to fund those resources for that period of time?