September 8, 2019

How to calculate how much money you need to raise for your startup

Dennis Abari @Sweesh

How to calculate how much money to raise for your company

Here is a secret on how to raise money most people wouldn't share with you.
Hi am Dennis the founder of Sweesh Technologies from YC startup school. Here is my take on how to calculate the amount of money to raise for your company.
Ideally, you should raise as much money as you need to reach profitability, so that you’ll never have to raise money again.

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%.

One way 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. 4

    This all sounds a little antithetical to the spirit of this community.

    1. 1

      It sure does.

      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%.

      When it comes to company control, I'd prefer bootstrappers/indie hackers to always try and keep 100% control.

  2. 1

    You can certainly raise money if you want to "play the startup game", so to speak. Coming from a YC startup school background, that makes a lot of sense, as that is the preferred and best-known method.

    I would suggest bootstrapping the project, if possible. Building a landing page, building a prototype, gathering emails and building an audience, all of this can be done on a shoestring budget.

    If you need money to hire developers, you can also look into non-traditional funding options. Earnest Capital (https://earnestcapital.com) is one of them, They're aimed at self-funded companies and help them grow without expecting the typical hockey-stick growth trajectory and the craziness that comes with that. There are more and more funds getting into this field at the moment, so there are plenty of opportunities to get funding without losing control.

    1. 1

      And to answer your question: I would still stay small. If you can't code, budget for an engineer, a marketing/salesperson, leave financial room for a few more, try to get as little money as you need.

  3. 1

    This is a correct framework to think about it. You still have to know how many engineers you need to complete a sellable product though. That usually require you are close enough to product/market fit that you can create a hiring schedule.

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