How much money should I raise?

This is a question that I get multiple times a week talking to CEOs of startups. Having raised over $500M for my own startups and invested in over 100, here is my best advice.

Decide the two or three most important measurable questions your company has to answer in the next 12 months, calculate a budget to get those answers. Double that amount. That is how much you should raise.


The #1 question every start up must answer is “Is this a good business?”. This high level question has many subcomponents which must be answered methodically. Lack of a method, distractions, in my experience, is the #1 reason for start up failure.

Startups are all opportunity, you can do anything you want, innovate all over the board. Except you can’t. You have limited capital. So you must decide what are the most important Next Right Actions to take given the limited resources. I spoke with a startup this morning who laid out 10 ways they could grow the company from $10,000/month to $100,000. That is too many. Investors don’t want to fund a fishing expedition. Lack of focus wastes time and money. I said pick two, budget them and get back to me.

Budgeting is also always a tricky thing. Maybe the two ideas you pick to grow don’t work. So you need extra money to pivot and try something else before you run out of money.

The other critical part is measurability. What are the EXACT KPI’s I am funding with this investment? Revenue growth? Downloads? COGS reduction? Which metrics are most important NOW to answer the top level question of “Is this a good business?” At each phase of the company, these questions are different. When you have a napkin and an idea the questions include: “Can I build a product?”, “Will anyone buy it?”, “Can I sell it profitably?”, “How much does it cost to get a customer?”. These are seed stage questions. If the answers to these are affirmative, the next questions include: “Can I scale customer acquisition profitably?”, “Is there a channel that can fuel growth?”, “What is the next level of cost reduction?”, etc. All of these questions must have measurable outcomes. Without measurement metrics, you don’t know if your investments are working or not. A fundable question is “Increase revenue from $10K/month to $100K/month within 6 months in my home market with a CAC/LTV > 1:3 and a gross margin > 70% with an investment of < $500k.” Compare this to “I want to raise $500K to try and increase revenue.” The first one is clear and can be answered within a funding window. The second one is a fishing expedition which has no end and is likely to fail.

In my experience, companies that have clear measurable questions they need to answer for the business within a funding window are the most successful.

Common fundraising errors I see:

#1 Not raising enough to answer meaningful questions. Funding the burn rate rather than making meaningful progress. Many early startups have rolling fundraising, taking small checks from whoever comes in the door. While this is easy money and can keep the lights on, it rarely is enough to answer the BIG questions and make progress on the fundamental questions.

#2 Lack of focus, chasing the shiny thing. Distractions which don’t make progress on the fundamental questions. Like considering foreign expansion too early. Or putting all your resources behind ONE BIG COMPANY MAKING DEAL.

#3 Expecting investors to grow your business. While many investors can be helpful, they do not and will not understand the business as well as management. Good investors will not compensate for bad management. As CEO you should pick the most helpful investors you can, but in the end execution stays on you.

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I ride my bike, surf, develop great software products, develop real estate and invest in great ideas.

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