TL;DR: Enough to hit the milestones to raise your next funding round
The right amount money to raise for your startup is “as much as you need to hit the milestones to raise your next round of funding.” It’s not rocket science, and yet the vast majority of founders I talk to don’t know exactly how much money that is, and there are a lot of misconceptions about how you determine how much to raise.
Being a startup on the VC treadmill is an incremental risk reduction of a business proposition. In other words: Right now your business is indeed very risky because some parts of your business are unknown. This is why you need to build a minimum viable product (which is neither minimum, viable, nor a product) to test part of your business model. Once these things are tested and proven, the risk of the business decreases and you can raise your next round of funding to embark on the next part of the journey.
The first mistake many founders make is trying to raise enough money for a certain number of leads, measured in months or years. It makes sense, but investors aren’t interested in keeping your startup afloat for the next 18 or 24 months. They are interested in keeping you alive long enough to complete certain milestones, which in turn are an indicator of reduced risk.
Let’s take an in-depth look at how you can best design your startup’s journey through the various funding stages – and break down how much you need to raise at each stage.
The best way to think about how much you need to increase for this round is to consider what you need to accomplish to increase your next round. This means considering the specific steps you need to take to prove that your business is moving in the right direction. These milestones may include: