September 12, 2019

How to calculate how much money to raise for your company

Dennis Abari @Sweesh

Here is a secret on how to raise money most people wouldn't share with you. My take on this is as follows

In choosing how much to raise, if you can manage to give up as little as 10% of your company in your seed round, that is wonderful, but most rounds will require up to 20% dilution and you should try to avoid more than 25%.

How to look at the amount to raise in your first round is to decide how many months of operation you want to fund. An engineer (the most common early employee for Silicon Valley startups) costs all-in about $15k per month. So, if you would like to be funded for 18 months of operations with an average of five engineers, then you will need about 15k x 5 x 18 = $1.35 million dollars .
If you are asked : “How much are you raising?” Simply answer that you are raising for N months (usually 12-18) and will thus need $X, where X will usually be between $500k and $1.5 million. As noted above, you should give multiple versions of N and a range for X, giving different possible growth scenarios based on how much you successfully raise.

Credit:Y combinator (for the source of the research paper)

Please what is you guys take on this. Would like to hear your own viewpoint on how much to raise for startups.

  1. 2

    This all sounds right, but I've read not to give a range for X. The source was the acclaimed "Venture Deals".

  2. 1

    Or, you can learn to bootstrap and be your own angel, giving up 0% of your company https://www.slideshare.net/amyhoy/be-your-own-angel-investor-a-revenue-model-for-bootstrapping

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