How much capital should I raise?

Tomasz Tunguz / November, 2017

Description

Tomasz Tunguz, Partner at Redpoint Ventures explains why he think startups should raise as much as possible and the typical revenue milestones for a Saas startup at the different stages.

Video Transcript

How much capital should I raise?

You should raise as much money as possible, but not to leave yourself so much that you mess up your cap table. At the seed stage, we run an analysis and we figured out, that startups that raise 1.2 million have a 50% greater chance of raising a series A than anything less. And that continues to grow but with decreasing returns as the seed round size increases.

The reason that companies that raise more money do better are that they have longer runway, they have more capital, so they can be more aggressive when it comes to customer acquisition, recruiting, software development, and so the milestones on a relative bases they can achieve relatives to other startups are much greater, so the value of a business is more. So the other way to think about how much capital you want to raise is when we invest in companies we really financing companies into milestones. And those milestones are points in the companies lifecycle where they can go and raise another round of capital. In software companies, seed stage companies are typically at 0, and series A companies are somewhere between 50 to 75K, sometimes a 100K at monthly revenue. Series B companies are about 250K in monthly recurring revenue, and series C, D and later.

What you really want to do, as an investor when you look to invest in a business, you really wanna make sure that your company has all the capital it needs to be able to fund the product roadmap, hire the people, hire the sales people and then refine the sales process, and then close the number of customers they need to actually generate the revenue milestone.

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