Questions

A question an entrepreneur gets asked from an investor is "How much are you raising?". Should the entrepreneur always know the exact amount?

The safe answer from the startup community seems to be a simple "Yes", however, I think the answer to the question "How much are you raising?" can complicate things down the road. For example, lets consider a startup that has never raised funds. 1) They could really use a small investment of $10K so they can get an awesome angel investor on board. 2) They could use $500K to achieve product/market fit. 3) They could also easily use $1M to achieve product/market fit and add a few employees. The startup can come up with ways to use each of the above amounts. If one of the first questions the investor asks the entrepreneur is "How much are you raising?" and the entrepreneur says $250K are they missing out on options 1,2 & 3?

3answers

you should approach this question from the result you are seeking to achieve. Funds should be raised in quantum units which achieve the goal of raising the equity valuation of the company to set up the next funding target or to achieve break-even/profitability goals.

This is not a one size fits all question...


Answered 5 years ago

Yes, you should always know the exact amount of your 'ask'.

Angels don't do $10k at a time, because the cost of doing the transaction is likely to exceed that. Similarly, if you say you're raising $500k, and then it turns out you can oversubscribe the round (i.e. raise $800k instead), that's a "happy problem" and not a missed opportunity.

The purpose of the next round is to "take the company to its next major stage". Your business plan should demonstrate how you hope to accomplish that, using the funds you're seeking. The investors are well aware that they can push you down or pull you up, to different funding levels... but you *plan* should demonstrate that you have a coherent explanation for why it's the proper amount of funding. They might argue with your story, but you should at least enter the negotiation *having* a story. If you just say "well, I need lots, so I'll take whatever I can get", that would be the voice of an unqualified CEO.

I hope that helps, and of course I'm happy to discuss it further if you like.


Answered 5 years ago

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