STARTUP MANUAL

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HOW MUCH CAPITAL DO
YOU NEED TO GET TO YOUR
NEXT MILESTONE?
The startup journey is long and arduous. If things go well,
you’ll be in a position to increase your startup's valuation
over a number of years. It’s likely that you’ll need to raise more
than one round of capital. For these reasons, you should
only raise as much capital as you can deploy effectively
over a couple of years. Remember, it's easy to spend
money but much harder to use it in a rigorous manner.
A good rule of thumb is to model out what you need to get
to your next milestone, for example:
• reaching a certain number of users;
• reaching a monthly revenue number; or
• breaking even.
Aim to raise enough capital to help you reach these milestones.
WHAT’S YOUR BARGAINING POSITION?
Raising capital is a negotiation. First, potential investors
must be interested enough in the opportunity to consider
investing. But once you’ve crossed this bridge, much of
the remaining decision will come down to valuation.
As previously mentioned, venture investors are looking for
an appropriate risk-adjusted return. It doesn’t make sense
for them to invest in early stage startups with over-egged
valuations, but often an investor will prioritise 'getting in' on
a round if they feel a particular startup has great potential.
HOW WILL I KNOW IF I’M IN A STRONG
NEGOTIATING POSITION?
• multiple investors want in on a round
• your startup is profitable, making closing
a round less of an urgent priority
• you have a strong team in place
• your startup is growing rapidly
month on month (i.e. revenue, users etc.)
• you’re in a ‘hot’industry
If you raise too much capital at a low, early
stage valuation, you and your co-founders will
take excessive dilution, potentially undermining
your long-term incentives to grow your startup.
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