How Much Should I Raise? + Fundraising Fieldnotes 5.14.24

“How much should I raise for my next round?”

Founders at all stages of fundraising ask me this, and my approach is about the same for everyone.

The punchline is, it's really about being goal-oriented and crystal-clear on the milestones you’re preparing to hit. So first, why do these questions come up?

Uncertainty at Early Stages

At the earliest stages, founders don’t have a lot of clarity on how much they should raise. They're pulled in a variety of directions and receive conflicting advice. Imposter syndrome can rear its ugly head, with less experienced founders thinking "Who am I to be asking for millions of dollars? It seems so crazy.”

They can also be pulled in the opposite direction when they hear about others raising large amounts of capital and think to themselves, “Maybe I should be doing that." They’ll also receive broad finger-in-the-air advice like “Raise for 18 months” or “Raise enough to cover x__ months of runway,” which doesn’t take into account their unique circumstances.

Determining the Right Amount

Instead, you should be thinking about how much money it will take for you to reach a certain goal or milestone. You can then adjust from there to get to a nice round number.

To oversimplify it, there are only two goals to strive for. The first is profitability. How much money would it take to get to break-even and profitable? If you raise that much money, then you control your destiny. The second goal is, how much money do you need to get to an amount of traction that will allow you to raise the next round of capital?

Common Mistakes

This is where founders mess up the most. Of course, market and timing will play a role, but you need to think to yourself: What is the amount of money I need to get to a significant milestone that will allow me to tell a story to the next set of investors? A lot of times, founders in the earliest stages will say, "I don’t feel comfortable raising X million dollars. Maybe I'll start by raising $100,000… that seems doable. If I could find 10 people to write $10K checks, I can get there. Maybe since it’s a smaller amount, they’ll be more inclined to invest.”

Advice From a Mentor

But really, this is the wrong way to think about it. No one wants to be an investor that funds a round that gets the company nowhere.

On this topic, I want to share what I learned from my old mentor and former boss, Alan Patricof- the founder of Greycroft and Apax, and one of the most storied investors in the history of VC. When we were deciding whether to invest in a company, he would often say: "What are they funding? Is this a bridge to nowhere?"

No one wants to be part of a round that is a bridge to nowhere. While it might feel slightly easier to raise less money, if $100k just barely keeps the lights on and gets you a few lines of code, how are you going to raise money after you've used all that capital up?

Milestone-Centered Strategy

That story is not going to fly with the next set of investors. So while it might feel uncomfortable, you're going to have to figure out what milestone you can center a story around and then work backwards from there. You need to know, “In order to get this product out the door, in order to get x__ customers on board, I'm going to need X, I'm going to need Y, and it'll take me this amount of capital.”

That's how you should be determining how much money you're going to raise in your next round of capital. You can use this framework for your very first friends and family round, your pre-seed round, all the way to series C, D, etc.

Hope this clarifies how you approach the question “How much should I raise” and gets you on the right track!

Be chased,
Jason

If you really know what/why you're building, you can do it in very few slides...

If you really know what/why you're building, you can do it in very few slides...

What did they expect him to send? 😅

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