In my experience, less than you think. Startups tend to look in all the wrong directions to establish how much capital they need to take in, instead of actually looking at what they need in order to accomplish a clearly defined mission, which is what really matters.
In this post, I want to touch upon some of the main fallacies I experience when talking to startups and give you a simple process to establish what you actually need and what would be best to have and how to get closer to the latter.
What you think you need to think about
- How much have my competitors raised?
- How much is an average xyz-round?
- How much could we imagine spending in the next 18 months?
This is all completely irrelevant to efficiently reaching the goals you’ve set to make your business successful. Even worse, I quite often experience founders saying things along the lines of:
Let’s set our goal a bit higher than what we actually need, that way, if we don’t raise the full amount, we’ll still be okay.
This is an understandable logic, but completely misguided nonetheless. If you come to an intelligent investor with bloated budgets, she will see straight through it, interpreting it as either–in the best case–incompetence, and–in the worst–as you trying to scam out money of your investors.
What you actually need to think about
Instead, here’s the steps to go through to determine how much you need to raise:
- Make a very, very thought-through and thorough plan for your company defining which goals you need to achieve.
- Make a realistic budget for how much resources and time you will need as a minimum to attain those goals.
- Make a realistic budget of what you could do with extra resources in the same amount of time as in the budget above.
- Show this to everyone who can challenge it.