The BEST Answer to ‘How Much Are You Raising?’
The ‘How much are you raising?’ question is a common and important component of investor Q&A. Seasoned founders have a particular way of answering this question. In this Dreamit Dose, Managing Director Adam Dakin presents his view on the right way to answer it after hearing hundreds, if not thousands, of founder pitches.
Make the specific amount you are raising and corresponding milestones clear at the beginning of the pitch, and do not give a range.
“Investors should not have to ask this question. This should be stated at both the beginning and end of the pitch.”
The amount you're raising is your ask. At Dreamit, we coach founders to use a snapshot slide at the beginning of the deck which covers this element and highlights why you’re an exciting investment.
When you don’t state the ask upfront, here’s the incorrect answer most founders give when pressed.
“We’re raising $5-7M which will give us 18 months of runway and allow us to make several key hires.”
This answer raises a few red flags. Most notably, you’re not raising a range. The size of the raise should be a single number based on a detailed operating plan and budget with defensible assumptions.
Determine the size of the raise by targeting time-based milestones backed up by a detailed budget. Runway and new hires are not fundable milestones.
The common incorrect founder answer above also does not lay out key milestones and inflections points you’ll hit on the amount raised. Investors expect to see cash needs aligned with time base milestones. VCs funds value-creating milestones, not runway. Remember, time is not a fundable milestone. Your inflection points need to put the company in a position for a liquidity event - raising more money at a higher valuation or achieving an exit that delivers venture-level returns. Your milestones determine the amount of runway needed, and thus your capital raise requirements, not the other way around.
Assume it takes 6-9 months to raise an institutional round and make that additional runway a part of your plan. Add some cushion. It always takes longer and costs more.
If asked about a smaller raise, signal openness to considering, but emphasize that the achievable milestones will be different.
It’s not uncommon for investors to ask, “Are you willing to raise less?” Why? Investors may believe that there are value-creating milestones achievable on less capital. This may be worth considering, since raising less now at a lower valuation and more in the future at a higher valuation may reduce the overall amount of founder dilution.
In most cases, you want to signal that you are open to a smaller raise. It never pays to burn bridges. If there is sincere interest on the part of the investor, offer to review a smaller raise and revised plan with your board. If they agree, return for another discussion. On the other hand, maybe you and your board have confidence that the amount being raised is the minimum required to achieve key milestones and a smaller raise simply does not make sense. Better to get this out on the table so you don’t waste time with a fund that will never invest in your deal.
End the pitch with an ask slide that summarizes the value-creating milestones to be achieved on this raise.
Your pitch should open with a clear ask and it’s best to close the loop in the same way. So in your deck, close with an ask slide that restates the amount being raised and the specific milestones you’ll hit with this funding.
When you’re ending the pitch and reach the ask slide, close by asking, ”Are we the kind of company your fund would consider investing in?”
By Elliot Levy, Healthtech Associate at Dreamit Ventures
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