Red Bear Angels is fortunate to have hundreds of industry experts and venture investors in our network providing tips and tricks of the trade at the drop of a hat.

Today, we’re opening up these insights on the RBA blog, starting with some fundraising 101.

Ever wonder what the magic number is when you’re going out to raise? Thanks to Advisory Board member and Cornell Tech Investor-in-Residence Thatcher Bell, here’s some tips on where to start.

Entrepreneurs embarking on a fundraising process struggle with this question.  Will you suffer too much dilution by raising too much?  Do you need to raise at least a certain amount to get the attention of certain investors?  What if you set your sights too high and fall short?

I suggest that the answer is fairly simple, and should be guided by the needs of the company, not so much by the vicissitudes of the funding market.  You should try to raise enough capital to achieve your next important milestone(s), plus enough for an additional three to six months of runway to enable your next fundraising process and to account for inevitable error in estimating the time you need to hit your milestones.

Determining your next important milestones is a non-trivial task on its own, but the first and most important hurdle should be that of the founders/management team.  What do you need to prove to yourself to continue to invest your own time?

Often, entrepreneurs try to raise enough capital to hit several additional milestones (launch a product, hit a certain level of sales, etc.).  The logic here is that fundraising is painful and distracting, so better to raise more sooner.  If you can raise more money on acceptable terms, that’s fantastic.  But be clear about the amount you really need to hit your next milestone (and raise capital after that) – that should be your minimum, even if raising that amount may put you back in fundraising mode sooner than you’d like.

 

Check out the rest of Thatcher’s post at: http://thatcherbell.com/how-much-capital-should-you-raise/#sthash.7CwcSW8j.dpuf