How much capital to raise?
- Updated on 02 Jul 2019
When meeting with investors for a capital raise, whether it is a debt or equity one, you will need to be able to quantify how much capital you will be needing for your startup. Giving an exact number of the amount you will need and backing it up with numbers displays diligence from your side, which goes a long way with investors.
Regardless of the type of investor you will be meeting, you will also need to show them how you will be leveraging this round of capital to get to your next milestone.
The amount of capital you should raise should be enough to:
- Fund the milestones you believe necessary to reach a significant inflection point in the value of the business. Achieving these milestones significantly reduces one or more key risks, creates more insight into the potential scale of the business, and demonstrates the execution abilities of the leadership team.
- Example milestones could include i) shipping commercial product, ii) acquiring a critical mass of customers or users to prove product/market fit and various business model assumptions, or iii) filling out the core leadership team with “A” players.
- Build buffer for the inevitable mistake or two in either your estimations or execution –usually one to two quarters. More is always nice, but remember this is very expensive capital.
- Bankroll the company during the ensuing fundraising process. If you have correctly defined the milestones and achieved them, raising your next round of capital should be straight-forward and take 4-8 weeks to get to a “yes.” If it’s longer than that, to some degree you had the milestones wrong or you didn’t execute well. So call it another quarter’s worth of capital.