Raise enough money to get you 6-9 months past the next milestone

Fred Wilson wrote a post on Sunday with the following advice for entrepreneurs raising money:

raise 12-18 months of cash each time you raise money. Less than a year is too little. You’ll be raising money again before you know it. Longer than 18 months means you may well be sitting on cash that you raised when your company was worth a lot less.

My advice is usually a little more conservative than that.  For me the best way to figure out how much money to raise is to work back from your next funding round, with the objective of making sure there is a decent appreciation in value.  The first step in this approach is to estimate the time and money it will take to get to the next value appreciation milestone (and remember startup valuations move in step functions) and then add another 6-9 months burn on top of that.  That way you can begin the fundraising process with the good news in the bag and have six to nine months to raise the money.

I was a little hesitant in writing this post, for fear of falling into the stereotype of the over-conservative European VC.  I think the point is important though, and in Europe at least raising twelve months money is a dangerous if you then miss a beat on execution.  My differences with Fred maybe reflect the different depths of the US and European VC markets and the fact that it still takes longer to raise money over here (unfortunately).  Additionally, Fred starts his post with the caveat that his advice is for companies that are ‘growing really fast’, whereas my advice is more general and applies equally to startups that have yet to hit their rapid growth phase.

For an alternative perspective on how much money to raise check out Nicholas Lovell’s 50 Questions: How much money should I raise?

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  • Great advice for a European start up Nic.

    I don’t think this view point smacks of an over-conservative European VC, it’s just being realistic (and unfortunately one of the reasons why a European start up will find it difficult to compete with a US tech start up) 

  • Raising some money would be a nice start, of course… Bootstrap might be the only way forward!

  • Why can’t someone from EU get US funding then?
    Need to move to NY or San Francisco with your family and dog and the other employees families and dogs ?

  • Some EU companies do get funding from US investors – e.g. Huddle, but you are right, not too many. That is largely because VCs know that they generally do better with companies that are closer to home where it is easier to build relationships with the management team and physical meetings can happen more frequently.