How Do You Decide How Much To Raise Per Financing Round?

Question: I would like to know, if our capital requirement for 4-5 years is $10M and for first year $1M, how much should I ask in series A? Should I just raise what I need for the first year?

Our Take: This is a good question with not a so-simple answer. There is no “right” answer, but here are some things to think about. Despite the varying views of Brad and I on this topic, I still think it is more likely than not that a $1M raise will turn off many VCs not willing to invest this small of a slug of capital. So how does one decide how much money to raise?

Don’t think of this necessarily as only raising capital for a time period (although this must be considered), but to get the company to some milestone. $1M may get you through the first year, but consider how much you need to reach an important company milestone, whether this is product beta, the proof of technology concept, or full go-to-market readiness. The last thing you want to do is be out raising money (which takes a ton of management’s time) while the company is at a critical juncture. Try to plan your cash raise with a time that the company will have completed some cycle of its development.

Therefore, you might project to need $10M over the first 5 years, but what do you need to get past the first hurdle? I wouldn’t suggest trying to raise it all at once as you’ll find most investors want to invest in a couple of rounds to gauge the company’s progress. Furthermore, if the company makes some positive strides, money raised later can be raised at higher valuations and save you some dilution.