After the last post on fundraising (“Links, Not Dots”), I received some emails asking me a simple, yet vexing question:
“What’s the right amount of money to raise?”
It’s actually fairly simple — and when combined with my previous note on valuation (“How Much Is Your Startup Worth (The $1M Question)”), it creates a nice framework to think about fund raising.
When determining how much to raise — you want to figure out how much money you need for the next 18 months (up to 24 months if you are in a less friendly fundraising environment). That’s the amount of money you need to raise.
Say you need a million dollars for the next 18 months and are willing to give up 20% of your company for that capital infusion, you have both the amount you need to raise ($1M) and your valuation ($5M Post-Money).