How Much Money Should Entrepreneurs Raise?

Source: Christopher Noble, MIT Technology Licensing Officer

“How much money should I raise?” asks the new entrepreneur to anyone who will listen. The answers, unfortunately, are all over the map: “Nothing! Bootstrap”; “As much as you can”; “Ask the investor”; “Enough for the first six months/one year/two years”; “Plan at least two rounds ahead”… Being an entrepreneur is tough!

I raised Angel and VC money for two startups of my own, and for four others as a consultant. Now I license MIT’s energy IP to startups, and we make sure they are adequately capitalized before we issue the license. Here are some suggestions on how to approach the “how much should I raise” question. Of course, I am assuming that you have already convinced the investor that you have (a) the team, (b) the opportunity and (c) the advantage that they are looking for. Focus on those three first!

In order to address the funding-level question, start by putting it aside; you have another question to answer first. What are your next one to three milestones? By “milestone” I mean something quite specific: an objective that is important to, and validated by, a potential customer or partner. Delivering a working prototype to a lead customer is a milestone; hiring a VP of Marketing is not. Successfully completing a Phase 1 trial is a milestone; moving into new lab space is not. Booking your first sale is a milestone; attending your first tradeshow is not.

You should raise money if and when you need it to achieve your next milestone. Achieving milestones increases the value of your enterprise. And you will have trouble raising your next round unless you have increased the value of your enterprise with the current round. Your milestone plan and your financing plan are thus very closely dependent on each other.

So first, spend time figuring out in detail what your next one to three milestones should be, and how much time, money and other resources it will take you to get there. I say “one to three” because every startup situation is different. Here are some suggestions on how many milestones you need to plan for: Enough for significant progress; another milestone every three to nine months; and don’t rely on milestones further out than two to three years from now. Further out is just a guess, and guesses don’t belong in plans.

Now that you know your next one to three milestones, and how much money and time it will take you to achieve each of them, you are ready to talk to the potential investor about the size of their investment. Your objective is to raise enough money to get you past an important milestone, and to convince the investor that reaching that milestone (not just “investing in the company”) is a good use of their money.

Easy, isn’t it? Except… the investor may have a different opinion: The money required may be too much for them or not enough (if they invest from a big fund); your milestones may be too far out, too risky or not ambitious enough; or some other aspect of the plan (or their investment criteria) may not match for them. Different funds and individual investors have different criteria on investment size, equity percentage, liquidity horizon, follow-on opportunities… it is important for you to find out if the conversation is “stuck” due to their discomfort with your plan or because it is a bad fit with their investment model. Ask.

If the investment model seems to fit, keep the discussion centered on the direct link between setting milestones and determining funding round size. The only useful way to deal with a disconnect on the funding question is to rework the plan and milestones (and maybe talk to a different investor with different objectives – a subject that deserves its own article).

In conclusion, a few tactical suggestions:

(1)   Don’t tell the investor how much money you want. Tell them what your next few milestones are and what they will cost, and ask them how many milestones they are willing to fund. That will encourage joint problem-solving and communication rather than an exchange of adversarial “proposals”.

(2)   Assume that it will take at least six months after you get in front of the investor to close the next round. So you need enough money to hit the milestone, plus six months of continued operating expenses while you are out raising the next one. You never want your current funding round to run out just before you hit your next milestone.

About Scale Finance

Scale Finance LLC ( provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, Washington D.C. and South Florida with a team of more than 30 professionals serving more than 100 companies throughout the region.