Written By: Marc Halpin
We engage with 400 Founders a month at Kerosene. 70% of these founders are looking to raise their first round of institutional capital; their Seed Round. And we help the best companies we meet, do just that! One question that we’ve been asked thousands of times is, “How much should I raise?”
Below are the four, most typical answers to that question. Ready? Let’s go!
The ‘Basic’ Answer
Raise enough money to last you 18 – 24 months. Simple, to the point and a derivation of your plan. This approach is very much ‘bottoms up’ with an emphasis on costs, revenue, and burn. Essentially it buys you time.
The ‘Milestone’ Answer
Raise enough money to get your business to the next milestone. The next milestone is typically a point in the business when you can justify a Series A round. Likely demonstrating requisite traction and/or product performance and probably an adoption metric or two.
The ‘Valuation’ Answer
Raise an amount equal to 20% of your perceived post-money valuation. If you think your company is worth $10M post money then you should aim for a $2M raise amount based on typical expectations of dilution tolerance. This kind of reverse engineering (of valuation and raise amount) is what a VC is considering when you make your ‘ask’.
The ‘Market’ Answer
Raise an amount that fits within the range of what is being currently deployed at seed stage. This data is freely available and when we look at the data, the mean sits just below $3M.
It’s a good idea to triangulate around these 4 approaches so that when you start meeting VCs, you’re in the right ballpark on your ‘ask’. If you are, then your odds of raising will likely increase.
Of course, some of you reading this may not like these answers (especially #4). Well, you may be the exception! Although you’ll need to justify it by way of performance. But as a word of caution, increasing your desired raise amount or working outside of these “norms” may well have a direct (potentially negative) relationship with the amount of time it takes to execute the raise. Just sayin’! 🙂
So, how much capital should you raise?
Kerosene Ventures: Helping Great Founders Raise Capital