2 min read Most startup organizations are running on limited resources, a vital one being funding. Successfully raising rounds of funding for your organization can make or break the business, therefore it is important you know how to do it well. Part of successful fundraising includes knowing how much capital to aim for and when to begin your raise. In this article, we provide some insight to help your organization better decide on these two factors.
How Much Funding Should You Raise?
Every day I ask entrepreneurs how much they are raising. Most begin with the big number; the full and complete raise they anticipate running. This ranges usually between $1M and $10M.
It’s good to have the big picture in mind, but some entrepreneurs are anticipating to raise this big number all at once because “they want to get the fundraising out of the way.”
I remind them that raising too much money around will cost you the equity you don’t have to give up. Your valuation is low at the beginning. It’s best to raise only the funding you need to reach the next milestone and no more. As you grow the business, your valuation will go up and you’ll give away less equity.
With this in mind, it can be helpful to consider breaking your fundraise into tranches. This approach will save you time as well as make each fundraise easier.
When Should You Raise Funding?
When considering how much funding to raise, consider your funding requirements. To start, calculate your cash burn and estimate the need for new cash.
Next, consider the preparation and timing issues. Start your preparation six months in front of the launch. Launch you’re fundraise six months before you need the funding. Use this six-month preparation time to introduce the deal to the investors and educate them on your current status.
Finally, there are seasonal issues to consider. I wouldn’t start in early June, but rather wait until late August to kick off a campaign.
Read more on the TEN Capital Guide: How to Prepare for a Fundraise
Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: firstname.lastname@example.org