Investment

How To Define The Investment Amount You Need To Raise – Forbes

Published

3 years ago

March 6, 2022

There are several factors that determine how much money you need to raise for your venture. If you managed to bootstrap and build initial traction, then the first and most important factor is how much money you need in order to reach your next milestone.

1. Secure Your Runway To Reach Your Next Milestone

If you manage to get to profitability from your first fundraising round, then you wouldn’t be rushed to raise money in the near future unless you decide to do so. This is a great goal to have because if you fail to reach profitability after your first funding round, then raising another round would be a matter of life and death. If macroeconomic conditions negatively affect the investment environment, this could turn out to be a big problem for your startup.

Moreover, funding is much easier (and cheaper) to get once you don’t need it desperately. Reaching profitability just after one round showcases that you are moving your business in the right direction, and subsequent investors would be happy to pay a premium (i.e. to give you more money for a lower share of your business) to get in on the action.

The exact amount you need in order to reach profitability, of course, varies from business to business. For example, if you know your burn-through rate and your revenue growth rate, then you can assume relatively safely how much runway you need to cover in order to become a self-sustaining business.

If your project is very early stage, however, extrapolating how much time you would need until profitability becomes harder. In this case, you should try to get at least 12 to 18 months of runway covered. This would give you enough time to validate your ideas and even to iterate once or twice in case your first attempts at finding product-market fit don’t work out.

So, if you have a team of 5 people working full-time with an average gross salary of $10k per month (your founding team and first employees need to be experienced and motivated, and developers are expensive), this means you’d need $50k per month or a total of $600k for one year or $900k for 18 months. Account for marketing, office rent if needed and other general expenses, and you should have a solid estimate of the amount you need to give your business a good chance of success.

If getting enough money to become profitable isn’t possible, then you should at least aim to reach the next milestone that would make it easier to fundraise another round. For example, this could be using a smaller pre-seed investment in order to produce an MVP and to successfully validate your solution. Afterward, you might need a seed round to finetune your business plan and figure out unit economics (the efficiency phase), so that you are well-positioned for scaling-up, for which you might need growth capital.

2. What Share Are You Selling?

Second, you need to divide what share of your business you are willing to sell in order to get the desired amount. Most funding rounds require between 10% and 20% of dilution, and it’s typically good to try to avoid giving up more than 25%. The reason is that you’d usually have to repeat the fundraising process a couple of times and offering too much early on would make further rounds a bit more difficult to close.

So, if you want to get $600k for 20%, this suggests a $2.4M pre-money and $3M post-money valuation. The question is if you are able to justify such a valuation.

If you have a financial history, you can argue for a multiple on your earnings. If you don’t, however, then it’s a good idea to compare your business to other startups in your industry that were able to close a similar funding round. For example, Y Combinator offers $125k for 7% of the business to all of their startups, which suggests a $1.6M pre-money valuation. This could be a very good benchmark for pre-seed investments.

In summary, in order to define the amount you need to raise, you need to know two things:

What is your burn-through rate, and how much time do you need in order to reach profitability or your next milestone.
What’s the valuation of your venture, and what percentage are you willing to part with? If you can make a convincing argument that your startup is worth a higher amount, you can part with a lower percentage for the funding amount you need.

Adblock test (Why?)

Source link

Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

7 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

Source link

Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

4 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

Source link

Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

1 month ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

Source link