Early Startups: how to calculate how much you should raise in your first/next round in 2018

The same theme has come up a few times now from first-time entrepreneurs who are raising money for the first time: how do I raise my first round [in the Silicon Valley]? By and large, I’ve found the Silicon Valley in 2018 is really setup around specific milestones and typical fundraising amounts for those milestones. For better and worse, these are very much oriented towards the typical timelines and financing needs of software startups, and one of the reasons why I think Silicon Valley doesn’t do hardware startups nearly as well— but that’s an aside.

I’ve found it helpful to outline what I’ve interpreted as the current state of the milestones investors around here typically look for at each stage. And of course, how much you raise needs to get you to the milestone at the next stage. And yes, you’ll be expected to give a 15–25% slug of equity at each stage, unless you’re really special — so hopefully you jump to later milestones without taking funding for each one.

Round terminology:

• “Friends and Family” Round More like Friends & Friends of Friends; from people that know you.
• Pre-Seed Round Semi-professional angels that don’t know you well
• Seed Round Professional angels / VCs that don’t know you well
• Venture Rounds (A/B/C/etc.) Venture capital firms, private equity, etc.

For each round, here’s the typical milestones I’ve found you have to hit, and a rough range of money taken. The actual amount of money taken is based mostly on what you need to get to the next milestone you need to hit, for the next round you want to raise.

• “Friends and Family” Round Milestone: Just an idea! They’re mostly just excited because it’s you. Typical Money Taken: $10k-$500k
• Pre-Seed Round Milestone: At least some customer LOIs, and a very well thought-out spreadsheet/table of how big your initial market is, and how that expands. Typical Money Taken: $300k-$1M
• Seed Round Milestone: at least a couple paying customers or basic user growth, as well as a very well thought-out Total Addressable Market Typical Money Taken: ~$2M
• Venture Rounds (A/B/C/etc.) Milestone: a proven business that simply takes money to get more customers/users Typical Money Taken: >$6M

Hopefully given these typical milestones, you’ll be able to come up with a plan for how much your company needs to raise, and when. And if your business needs a lot more money than is typical for each of those stages, say because you do hardware, I think in Silicon Valley in 2018, you’ll have to be pretty creative in your fundraising strategy ;) .