TBC: How Much Should I Raise?

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So you want to know how much money you should raise in this upcoming round for your company? Welcome to this episode of the back channel today. I want to talk about this common question that I get from tons and tons of founders. It comes in various forms.

It comes at different times in different stages of founders. My approach is about the same for everyone. The punchline is it's really about being goal oriented. So first. Why do these questions come up?

At the earliest stages, founders are very uncertain. What they should be doing. They're pulled in a variety of directions that lead them to smaller amounts or bigger amounts or being uncertain of what they should raise on the smell of a smaller amount side of things. They are extremely [00:01:00] imposter syndrome prone where they're like, who am I to be asking for thousands, hundreds of thousands and millions of dollars.

It's like, it seems so crazy. And then on the other side, they're pulled into the direction of, well, I keep hearing about. About different people raising certain amounts of money. Maybe I should be doing that. And then people are given the broad based advice. Uh, raise for 18 months finger in there.

That's what you should do. I find that founders don't know exactly the process to figure out what that number should be. And while people do provide very round numbers to investors on raising $1.5 million, $750,000, there should be a little bit more of a science to it. In terms of how you want to get to the essential target you want to get to.

And then maybe some rounding up to get to round numbers. The approach is that you need to be milestone or goal oriented. You need to figure out how much money it will take you to get to a certain goal or a [00:02:00] certain milestone. And really to oversimplify it.

There are only two that exist. The first is getting to profitability. How much money would it take you to get to break even profitable? If you think about it, if I raise that much money, then I control my own destiny. That's one goal. The second goal is how much money will I need? To get to an amount of traction that will allow me to raise the next round of capital.

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[00:03:00] This is where founders mess up the most of course, market and timing. We'll adjust you a little bit, but you need to think to yourself. What is the amount of money that I need to get to a significant milestone that will allow me to tell a story to the next set of investors that I'm trying to get to invest in my company. A lot of times, founders in the earliest stages will say, well, you know, I don't know if I feel comfortable raising. X million dollars or half a million dollars.

Maybe I'll start raising $50,000, a hundred thousand dollars. That amount of money seems doable. If I could find, I don't know, 10 people to write 5k checks, 10 people to write 10 K checks. [00:04:00] Well, then I'd get to a hundred thousand dollars. And while it seems hard, It's doable. So that's what I'm going to go out to tell people I'm going to raise and, you know, because it's a smaller amount, maybe there'll be more inclined to invest in me. But really this is the wrong way to think about it. No one wants to be an investor that funds around that gets the company to nowhere.

I want to quote one of my old mentors, somebody that I learned, the venture capital industry from my old boss, Alan Patricof the founder of Greycroft the founder of Apax One of the most storied investors in the history of venture capital. He often would say this thing.

When we looked at companies and deciding whether to put money into them, is 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. So while it might feel slightly easier to raise less money, if a hundred thousand dollars just barely turns on the lights and gets you to write a few lines of code, How are you going to raise money after you've used [00:05:00] all that capital up?

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 in order to get this product out the door in order to get X, Y, Z customers onboard, 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 for your pre-seed round, all the way to series C D et cetera. So I hope that answers the question. For you all and that it deflects some of these questions.

I get all the time on how much money should I raise? Well, you'll figure it out. Once you figure out what milestones you need to hit. Thanks for joining me on this episode of the back channel. I'll see you next time.

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