Hot Seat

Chapter 21. How Much You Need

The right first question is not “How much are we worth?” but “How much do we need?” Unfortunately, I can’t tell you that. But I can give you a simple framework:

1. Figure out how long it will take you to hit the next major inflection point in your company’s lifespan. That inflection point might be a meaningful revenue number, a major development milestone, or an impressive growth curve. Give yourself some buffer in case things don’t go exactly to plan. The right answer should be in the range of 16–24 months (typically 18).

2. Come up with an amount of money (a single number, not a range) that will let you grow the company to hit that point over that time period. You’ll need to model out the growth in staffing and other related expenditures that will come with your planned success.

3. Optional: if you come in high, repeat the exercise to create a second number that is smaller, with a less aggressive goal and a duration on the lower end of the range.

When someone asks how much you’re raising, bust out the big number. Do not flinch, apologize, or dissemble. If they ask you directly if you can start with less, explain that you have a more conservative plan as well, tell them the smaller number, and explain how the plan is different.

The “how much money do we need” number also is linked to your credibility as founders. If you are first-time founders without a strong track record, you should target raising $250K–$1M in a seed round. If you are the graduate ...