Bursts of Color - How Much VC $$ to Raise
Sometimes promising startups get off on the wrong foot with their VC fundraising effort because they make one of three common missteps:
Seeking an uncommon amount of capital that puts them in "no man's land" relative to others.
Naming a valuation upfront that is too high, too low or otherwise signals naiveté.
Explaining how they're going to spend money rather than pitching what it will enable them to accomplish.
Carta recently shared this handy fundraising cheat sheet that’s consistent with my data points. Here are my three starter suggestions for every founder looking to raise early-stage VC:
1. Target a Common Round Size
Pick one of these default numbers unless you have a special reason to do something different. Investors see these most often and many of their firms are setup to write checks accordingly… so asking for a number much higher or lower than these can risk putting you in "no man's land."
Pre-Seed: $1.5M
Seed: $3M*
Series A: $10M
Series B: $15-30M**
2. Stay Silent on Valuation
If an investor asks what valuation you are hoping for, the correct answer in most cases is, "I will let the market determine valuation. I just want to make sure my company is appropriately capitalized."
Once you have a term sheet or a specific offer from a significant investor (and even better if you have two competing offers), then you are in the position to negotiate price. Quoting a valuation before you have an offer can usually only hurt you.
Related: most of these rounds get done between 15-20% dilution… so in many ways your fundraise target determines the valuation.
3. Define What the Capital Enables
Do say: “We are raising $3m, which will get us from $500k to $3M ARR and 100 customers in the next 18 months. This includes +4 engineers and +3 salespeople.”
Don’t say: “We want $3M for hiring and runway.”
Investors will want to know what they get for investing $3M (6X revenue growth), not what you get (more staff and breathing room).
*Note on Seed: The Carta chart shows Seed broken into two groups, but I suspect these are effectively all the same with a ~$3M target. For those who get a large investor to write a term sheet, these turn into priced rounds that push the round sizes up to that $3.4 median you see in the chart. For those who don’t get a term sheet, these often become party rounds that end up on SAFEs and are hard to fill out, which is why you see that median is $2.4.
**Note on Series B+: Once you get to this sort of growth stage, most investors are measuring companies on their metrics (and most such commercial companies have >$5M recurring revenue)... so it's natural that you get a wider range of round sizes that are based on the bespoke needs of each company.