How Much Cash Should You Raise?

And my formula for determining round sizes

Hey y’all — it’s one thing to know what you need to do in order to make your startup attractive to investors, it’s another to know how much cash you should actually raise.

I see a lot of founders actually do this backwards (I’ll explain below) and with VCs starting to call capital from their LPs at increasing rates again, I wanted to set the record straight by sharing my formula for how to determine your round size.

This comes from my Set the Right Valuation course, which covers the 5-step framework in full and includes exercises to help you determine your round size, valuation, and more.

Today’s newsletter covers a small piece of it but to get the full framework then check out the course.

How Much Cash Should You Raise?

Set Your Milestones

Last week’s post covered how to set the right milestones for your raise. You won’t be able to determine how much cash you need if you don’t first understand what you’re going to spend it to accomplish.

You can read the full post if you want to go deeper on how your milestones impact everything, including your valuation, but to briefly recap what’s relevant for your round size you should have the answer one question:

What do we need to accomplish with the money to be able to raise another round later on?

Once you’re on the venture path you’re almost certainly going to need to raise again in the future in order to have a shot at growing your company enough to fulfill the promise of venture-scale returns you made to your initial investors.

As a result you need to work backwards from the next round to determine what size this current one should be.

Also if you’re raising without a clear idea of what you’re going to do with the funds investors will look at you like a riskier investment than they’d like to.

Use The Round Size Formula

Once you have your milestones you can easily back into your round size by considering three factors:

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