I think it's instructive to answer your question by trying to get in the investor's head and find out how much an entrepreneur really needs to raise, and I want to talk about the actual amount of capital that's considered being raised and what our investors really look for.
First of all, the amount of money being raised is a pretty good indicator of how much the entrepreneur thinks the company is really worth. The thing I find most interesting is how the company arrived at that number. What our funding sources want to know is where they're going to spend the money. Can they do it for less? What would they do if they had more money?
Secondly, the question is, I think the right question is, how much money should be raised? The right amount of money to bring into a company is enough to reach sufficient milestones, if they raise more money to a higher price at a future date. If all goes well, the money invested will be used to drive all sorts of risks out of the business. Will it be used to take the company to cash flow positive? Will it be used to pay down debt? If they don't know exactly what they're capital needs are or they raise too much money early on, they could be selling off too much of the company for too little capital.
Third, if too little money is raised, the company may run out before the business is proven enough sufficiently to raise additional capital. In other words, raising too little money can be fatal.
Fourth, companies should leverage early stage venture money to drive up the value of the company, so the next time the company fund raises. they'll be able to bring in larger amounts of money while suffering smaller amounts of dilution, which is very important for management teams.
Unfortunately, the perfect amount of money to be raised is not always obvious, and the question of why is the company raising the amount of money it's raising is really important. So, when the entrepreneur is going out to raise money, they have to be prepared to know the answer to how much they're hoping to raise and why.
We welcome questions from our investors and entrepreneur when they're preparing to engage. They can call us at the Capital Match Point because ultimately we're interested in funding successes with our investors.

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