I’m raising a seed round for my startup. How do I decide how much to raise?
The following answers are provided by the Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.
1. Include Unforeseen Costs
“Build a rock-solid plan for the business to ensure you reach your goals. Include all costs you can foresee, and on top of that, add a 25-percent buffer to any costs not set in stone. Then, include an entire category devoted to unforeseen costs. Ensure you included everything: rent, healthcare, salary, hardware — everything. Raise that number and not one dollar more. Spend less than your plan.”
– Brennan White, Watchtower
2. Look Forward to Series A Round
“Seed rounds are to help you formulate and build your idea, product or service from a conceptual state to a useable state. Hopefully you can show some good growth or adoption during your seed round to then get a favorable Series A round to grow your idea. Seed rounds tend to not be so favorable from an equity standpoint since your idea is not yet proven.”
– Phil Chen, Givit
3. Double Your Expectations
“However much money you think you need to raise, double it. It always takes twice as much money and time as you originally anticipate. The goal is to give yourself 18-24 months to prove the merit of the idea. And hopefully in that window you’ll either be able to raise a Series A or have your revenues support the business.”
– Luke Skurman, Niche.com
4. Understand Needs and Burn Rate
“When trying to determine how much one should raise, I would try to clearly understand what that capital would be used for, how fast it will be used and how much equity I am willing to give up in exchange for that capital. Taking those steps will help you be better structured when out on the fundraising trail.”
– Bobby Grajewski, Edison Nation Medical
5. Raise Enough for Six Months
“Raise enough to get you into your sixth month of revenue. This will allow you time until the business is bringing in cash and will create either good value for the next round of investors, enough cash flow to operate at a profit or a fast failure.”
– Justin Bailie, FR8nex.com
6. Use a Financial Model
“Creating a set of financial projections that cover the conservative, reasonable and aggressive growth cases is important to model, so you know how much money you will need to raise. Crunch your numbers very thoroughly and be sure to take into account your team members, benefits and taxes, facility costs and any travel expenses you think you’ll need for the next year to 18 months.”
– Doreen Bloch, Poshly Inc.
7. Be Responsible
“Treat your business like a health- and money-conscious parent’s grocery list. List and price the essentials to find ways to stretch each dollar without compromising quality, remember to stock up on extra supplies in case of extreme weather or a boo-boo, ignore the kids screaming “I want candy!” and add it up. Compare to similar startups to ensure you’re in the ballpark, but focus on you.”
– Manpreet Singh, Seva Call
8. Raise Enough to Matter
“If you are raising funds, make sure it is enough to get you to a major business milestone that will make you matter to future investors. Your seed round should either get you to break even or to significant growth. If you succeed in either of those goals, your seed round was very successful.”
– Adam Lieb, Duxter
9. Raise Enough to Last a Year
“For a seed round, I’d recommend putting together 12 months of burn based on a super-lean expense structure. You’ll need your seed money to get a basic amount of traction for your product and expand it to more than a minimally viable state. You’ll also need to be allocate funds toward marketing and user acquisition so you can identify successful channels for further exploitation.”
– Danny Boice, Speek
10. Raise Enough for a Year and a Half
“For a seed round, I’d target raising 18 months of funding. Raising money and getting to profitability take time. Make sure to give yourself enough leeway to do both without losing focus on the business.”
– Sarah Schupp, UniversityParent
