By Santosh Sankar
A recurring theme this past week in the accelerator has been around ascertaining funding needs ahead of a seed round. To help founders size their funding needs, I created this worksheet.
A company should raise just enough money to get them to cash flow. That is, to a point where they’re generating enough cash to cover their expenses and growth plans. That being said, most businesses do require additional rounds of capital but raising a boatload upfront isn’t sensible.
“Based on our roadmap, we expect we’ll need $1M over the next 18 months.”
The first round of outside capital is often times the most expensive due to the myriad of risks inherent in the innings of a corporate life cycle. Dilution in the first round is generally around 20%. To raise this capital, a founder needs a plan that Investors buy-in to and is believable. Odds are that there are a couple different scenarios that provide optionality where more capital results in faster growth.
I generally lay it out as such:
- What’s the business roadmap for the next 12 to 24 months?
- How do we get there? The driver of the roadmap is people– who will be hired and what will they cost?
- What type of growth does each scenario afford? Put another way, if you raise more (or less) capital, how much more (or less) growth do you expect and why?
- Do you expect to cash flow by the end of the time period or will you be setting up for the next round?
Getting a plan together will give investors comfort that there’s a thoughtful plan and approach in place to put their dollars to work.
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