Determining how much funding to raise is something worth spending time on. Here we will show you how to figure out the amount of funding to ask if you are an early-stage startup, especially if this is your first fund.
We will break the methodology into three steps, each of which will make you understand your company financially more. Together, they will guide you in narrowing down how much investment to ask.
Step 1: Identify milestones
Money is a necessary fuel and resource to reach a startup’s milestones and goals. Planning ahead your realistic milestones will help you identify the funding needed to reach them.
Milestones are the main key points to help you reach your big goals for the startup. They are what you spend your day-to-day operations and resources on. Typically, startups requesting their first fund ask for an amount that will endure them for 12-18 months.
The more realistic and measurable your milestones are, the easier it is to determine the investment needed and to convince investors of your strategy.
Step 2: Build a business plan
After having clear milestones, you are ready to develop a detailed and coherent business plan. Your plan should identify the major costs needed to achieve the startup’s milestones, along with the revenues expected to be realistically made.
Build forecasted cash flow statements to determine the capital needed until the next fundraising round. After having a clear number, you should add a buffer to account for uncertainty. In the world of startups, we can never plan with 100% accuracy. Things might go south and you need to have extra cash to avoid dying out early.
Step 3: Support your investment ask with valuation
Conducting a valuation for your startup will serve as a final check of how realistic you are. If the startup’s valuation is $2M and you want a $4M check, you are selling your startup’s 100% ownership 2 times to the investor.
The amount of funding you request must be in line with the startup’s valuation and how much you’re willing to sell. Typically, early-stage startups give away 15%-30% of the startup’s ownership. Whichever percentage you’re comfortable with, you should account for future expected fundraisings. This will help you avoid selling too much of your company that you become a minority.
At VeFund, we made valuation an easy process with our automated valuation calculator. Try it out and get an instant valuation for your startup.