May 17th, 2014

Know Why You’re Asking for Money

There is something crazy happening: I find myself in meeting after meeting with entrepreneurs who ask my advice for their funding strategy. And they often begin with: “I want to raise X amount of money.” When I ask the entrepreneur what they need the money for, how they intend to spend it, what they want to achieve with this particular amount and why X and not Y dollars — they fumble.

Turns out: They haven’t really thought this through. They just picked a number which sounded good and inline with what they read on TechCrunch and justify it with a tiny bit of top-down validation.

Here’s some fundraising 101: First figure out what you actually want to build. Then determine what that means in terms of your company: How do you break this goal down into the smallest subset of the problem you can usefully solve. Now you determine how much money you need for this (and possible additional iterations which you can plan for today). Bonus for doing some analysis around: What would we do differently if we had more money? Less money?

Then, and only then, do you have an idea how much money you need to raise.

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