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- เผยแพร่เมื่อ 19 มิ.ย. 2024
- What is the appropriate amount of funding founders should request?
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In this #DreamitDose, Dreamit Managing Partner Steve Barsh discusses fundraising strategy and how founders should frame their investment ask. Dreamit gets asked all the time by founders: “Is there a formula for determining how much money I should raise?” Spoiler alert: There is! When raising your next round, one of the biggest mistakes startups make is not tying the raise to specific company goals and key milestones. In this episode, you’ll learn how to frame your fundraising ask according to specific value inflection points. Steve dives into knowing how much money to raise, how long it takes to close your round, and how you can plan accordingly. Finally, what should you call your next round? Make sure you don’t inadvertently “burn a letter.”.
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When pitching investors, remember that your ask is like porridge; it follows the goldilocks ratio and has to be just right. Asking for too much or too little funding will raise red flags with investors and cause you to lose credibility. So the question remains: what is the appropriate amount of funding founders should request? This is a difficult question to answer. Luckily, there is a formula you can use to answer it. This framework helps founders position their fundraising targets and avoid red flags with investors. Here are some common red flags for venture investors:
Red Flag #1: Ask isn’t tied to specific fundable milestones.
Red Flag #2: Round prices equity too high or too low.
Red Flag #3: Ask doesn’t align with fundable milestones.
Red Flag #4: Use of funds highlights features, not benefits.
Red Flag #5: Using the wrong term to describe your round.
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I came here from Slidebean 🙌🏽☺️🎊
me too
Same
Same here😅
I have been searching for an answer for these fundraising questions for weeks. Great content, thank you!
This is straight to the point with fulfilling content. Great! 👍🏻
Hard to tell which is more impressive, the value of the information or how succinctly it was delivered. Thank you.
I’ve been following the channel for almost a year now. Such a valuable content!
short, simple and solid information. Thanks for sharing
simple, and great information.
thanks!
Great action packed video. Thanks for putting this together!
Hi DreamIt, thanks for the deep content. I am trying to trace the video on how to create a document vault for my startup. Thank you.
Fantastic Video!!! Loved it!!
Great straightforward content. As investors like...
Hey Steve, You definitely gave me more direction than I had before watching the video.
We have already raised a very small seed amount, and somehow with my current exposure, it seems a little unprofessional to portray that I am raising a "Seed - 2" round. I am happy to be told that it's pretty common, but just in case, is there any other terminology I can use for a round I want to raise between my Seed and Series A?
Pre A Series
Great content :) Useful video
This is excellent information
Thank you for having this conversation.
Hi steve you are helping me a lot honestly. About this video i want to ask . are this vc’s expecting a revenue at the first month of funding ? (Seed stage)
Hi Brett. Thanks for watching and your question. Answer to your question, in 95% of cases, no.
Great content as usual!
Is there a difference between using the name “pre-seed” vs “friends and family” for your first small round?
Thx for watching and your question. Usually, there is. Remember never "burn a letter." If you are just raising your first money and it's really from friends and family, call it that. Then make your next round your pre-seed or seed. Go SLOWLY through the names of rounds. You are creating expectations as you use up "round names". It's largely an optics issue but important!
@@stevebarsh1224 - Thanks. Is the distinction between f&f and seed based on size, inclusion of an institutional investor, or something else?
@@msk8k A F&F round would never have an institutional investor. A seed round may (or may not) have an institutional investor. It's largely an "ordering" and optics issues. Again, take it as slowly as possible. Very first is going to be a F&F. Then a pre-seed or seed round. Usually, pre-seed will not have institutional, but pre-seed could have angels. It's a bit confusing and the nomenclature can be confusing. It's just sometimes we seed startups go "too quickly." By the time you are raising an A, you are definitely institutional, and usually, you are at revenue (in 2020). The last point, don't feel compelled to raise if you don't have to. Bootstrapping is awesome if you can do that. Venture is very expensive and has plusses and minuses. Best to bootstrap as long as possible (if it's an option). Great #DreamitLive bootstrapping episode here >> www.dreamit.com/journal/2019/9/27/bootstrapping-from-0-to-exit
@@msk8k Usually inclusion of an institutional investor.
What about raising billions, as a start up, with the idea of property, and business acquisition over years, and only needing start up funding, or pre-seed? As the business have a way to not only secure the funds, but also guarantee returns, plus making a difference.
This is tough. I feel like we're asking too much as we literally can't be valued now. But then again anything less we put us on toes. We only have a working product.
What would be a fine Angel round?
The amount you need to get to cash flow breakeven or your next fundable milestone (plus 3-6 months of runway to raise a round).
@@stevebarsh1224 Thank you Steve.
Great video. Never heard of a "seed-1". Is that an industry standard? What if the company is making 5-10M/yr? Can you still call it a "seed-1" if your revenue is quite high and you don't typically fall into the "seed" round (if you were bootstrapping before then)?
I have the same question, really look forward to you answering this in the comments section ;)
what advise would you give to founders who have idea they are working on and are looking for money to fund the development of the product and eventually bring it to market.
Hello @steve barsh Already bootstrapping, and on the stage of pre launching of the product, it is a fintech start-up and revenue will be going to highest ever. But I can't do more bootstrapping now, the whole plan, the whole system is ready with a complete pitch deck. But I don't have a team, I'm the sole founder. It'll be graced by your suggestion that How should i go for the funding rounds ?
thank you very much
Hi Steve. If a start-up needs xyz dollars to achieve its next fundable milestone, then based on the 20% rule its value is 5x the funding. So, when an investor asks: "It's a start-up, with no sales and you're valuing it at $8m based on future potential. Are you mad?" Are they really saying - "I'm not interested, stop wasting my time"?
Good question! You're thinking of things the right way (based on ratios). It's not a hard and fast rule but a good solid approximation. Remember that the 20% rule is based on the POST money valuation, not pre. So if I'm raising $2m in an early round, that implies roughly an $8m pre and $10m post (your 5x). Not sure if or why they would say that. If you are building what looks like it could be a really big business, strong differentiators with what the market cares about, building in a big total addressable market, $2m would not be unreasonable. This is not funding based on EBITDA or a multiple of revenue. At this stage, early stage investors are used to the approach I'm describing. You may get that reaction from an investor who does not typically invest at this stage. Hope that helps. Thanks for watching!
Hey - thanks for this - it's above and beyond what I expected :)
@@tanglebox32 My pleasure!
I always like you content
Great video
Glad you liked it! Thanks for watching. - Steve
I got it right. Wuuuuuuuhhhhhhhuuuuuuuuu
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"Investors" can be too spoiled. Let's just keep 'em out of the game.
Fantastic Video! Loved it!