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?