Investment Stages & Milestones

What the greatest technology investors say about Investment Stages & Milestones

Two Rules of Thumb for Early Stage Fundraising

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“[With a fast growing company], doubling employees year over year, adding users and customers [] very rapid[ly] [], [] don’t [] raise too much money.  [] [Otherwise] [the company] will be sitting on cash [] raised [at a lower valuation] [] [which is] too dilutive to [founders] and angels.

[Wilson has] two basic rules of thumb [for the amount to raise in early stages, i.e., seed, Series A and B rounds]. First try to dilute in the 10-20% band whenever you raise money.” 10% is preferable.  More may be necessary, “[] but try [] to keep [] dilution below 20% each round.  If you do two or three rounds [exceeding] 20% each round, you’ll end up with too little [equity].

Second, raise 12-18 months of cash each time you raise money.  Less than a year is too little. [] Longer than 18 months means you may [have cash when the company had at a lower valuation].

[] When [a] company gets above 100 employees and valued at north of $50mm, things change. You may need [] more cash [] for working capital [] and [the company] may not be increasing value [as rapidly as] when [it was] smaller.”  A raise of 24+ months cash may then be appropriate.  Fred Wilson, How Much Money To Raise, Jul 3 2011;  http://www.avc.com/a_vc/2011/07/how-much-money-to-raise.html