Investment Stages & Milestones

What the greatest technology investors say about Investment Stages & Milestones

How Much Seed Money to Raise

Chris Dixon General Partner Andreessen Horowitz, angel investor and former entrepreneur

The short answer for how much seed money to raise is “[] enough to get [a] startup to an accretive milestone plus some fudge factor” of say, a 50% round size increase.

““Accretive milestone” [means] getting [a] company [where it] can raise money at a higher valuation” and is a function of market conditions and the startup’s nature.  “As a rule of thumb, [] a successful Series A is one where good VCs invest at a pre-money [valuation] that is at least twice the post-money of the seed round.  So if [a] seed round [] raised $1M at $2M pre ($3M post-money valuation), [] the Series A [] should be [] a minimum of $6M pre (but hopefully [] significantly higher).

The worst thing a seed-stage company can do is raise too little money and only reach part way to a milestone.  Pitching new investors in that case is very hard; often the only way to keep the company alive is to get the existing investors to reinvest at the last round valuation (“reopen the last round”).  The second worst thing [] is rais[ing] too much money in the seed round [], hence taking too much dilution too soon.”

A startup should determine its expected biggest risk and how to eliminate that risk.  “For consumer internet companies [and SMBs (small/medium businesses)], eliminating the biggest risk almost always means getting “traction” – user growth, engagement, etc.[] For online advertising companies you probably want revenues.  If [] selling to enterprises you probably want [] credible beta customers.  

The biggest mistake founders make is thinking that building a product by itself will be perceived as an accretive milestone.  Building a product is only accretive [] where there is significant technical risk []”.  Chris Dixon What’s the right amount of seed money to raise?  Dec. 28, 2009; http://cdixon.org/2009/12/28/whats-the-right-amount-of-seed-money-to-raise/