Andrew Wheeler — Tue, 11 Sep 2007 16:29:10 GMT

I believe the best strategy in fundraising amount is to raise the right amount of money to get you past the next major valuation inflection point (with some buffer), but enough to ensure you aren’t out raising money all the time. Raising funding is a time-consuming process- sapping management time from the process of actually building product and getting revenue. So you want to raise enough money to make sure you aren’t perpetually in fundraising mode. For a venture round, I think 1 year is a good minimum. For sources of capital that are easier to close a round from (ie- angel), then the time horizon could be shorter.

The maximum amount should be balanced by when you believe the next inflection point in your companies valuation is likely to be. This could be a major product milestone, a major market event, break even, a certain size customer base, etc. If for example, your company has not launched it’s product, but within 6 months will have launched and expect immediate uptake that you can demonstrate to prospective investors, then raising 2 years of capital will be unnecessarily diluting existing shareholders (founders/employees/previous investors). The valuation with a proven product in the market will be much higher than without one at all- so you are effectively giving away shares at too low a price when you raise money that will be used on the other side of that valuation change.

If however, you are building a complex product that won’t launch for 2 years, then you really want to raise more than 2 years of money or you may find yourself having to raise money again without much change to the valuation. That isn’t a good use of management time. Another thing to consider in the amount to raise is that another downside of raising too much money is the temptation to spend it on things that aren’t absolutely necessary.

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