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.”.
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.