How much capital should you raise in your next investment round? – Entrepreneur

October
21, 2020

4 min read

Opinions expressed by Entrepreneur contributors are their own.

• A Venture Capitalist wants to see how much capital you are raising, how long it will last, and what they are going to do with it.
• Do not leave aside the following questions: What would you have to achieve the next time you go out to raise capital? Will it be enough for another VC to show interest?

Usually before making a formal appointment with a Venture Capital (VC) investment fund, there is a prior conversation with an investor. However, even if the first contact is a chance meeting between you, you should be prepared for any kind of questioning about your project. If for some reason you are not able to answer, think that you are closing the doors, you will probably miss the opportunity to receive a next appointment and therefore an investment.

Many are the questions that an investor needs you to answer; some of the important ones and that, usually, are not dominated by the entrepreneur. Some of them are related to the (real) valuation of your company, the amount of money you intend to raise and what you are going to use it for, or specific answers about your financial analysis.

There are many things that investors are looking for when reviewing your deck , but beyond knowing your income, margins, CAPEX, you should also pay attention to cash in, cash out and company milestones. In short, a Venture capitalist wants to see how much capital you are raising, how long it will last and what they will do with it. The data that you must provide must be realistic, justified, since it is part of the risk that an investor assumes with you.

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Cash In

It is the money you want to raise and your Venture Capitalist seeks to make it reasonable. For this, at G2 we recommend asking the following questions: Are you raising the appropriate amount of capital in relation to what you want to achieve? In relation to the size of the team? In relation to your needs? We recommend you think in periods of between 12, 18 or 24 months. Don’t ask for more than you don’t need, implement a solid plan to strategically execute your company. Generally, these types of suggestions will not give them to you, they will simply let you know that they are not interested in your company.

Cash out

It basically refers to when your company runs out of money. Generally, you are expected to raise capital for 12, 18 or 24 months. But, if your runaway is much shorter, allow enough time to lift your next round so that you don’t run out of money. It is recommended that you do not draw up a plan to be financed for more than two years, maybe three. What investors hope is that the capital they bring you will begin to bear fruit, since what the funds seek over time is an exit strategy with a much greater value that will generate the expected returns of what they once invested.

Many VC mutual funds will lead one round and will likely approach you with other funds for subsequent ones. So do not leave aside the following questions: What would you have to achieve the next time you go out to raise capital? Will it be enough for another VC to show interest? Will the milestones reached be enough for a VC to pay a higher price in your next round of funding? Have you progressed enough?

Creating a capital raising strategy is not a simple task, it requires the accompaniment of an expert who knows how to implement one suitable for the needs of your company, guarantee that your numbers are correct and that it is linked to the appropriate investment funds for your next rounds. May your round of capital raising be flawless!