One question that I get more than most when I’m mentoring first-time entrepreneurs thinking about angel or seed stage fundraising is about how much to raise and at what valuation. As Ben notes, this is more art than science.
What I always stress to founders is that they need to think about this fundraise in the context of what they need to accomplish to get to the next fundraise. How are they going to deploy the cash they raise now to hit a key set of milestones to prove the thesis of their company and find product-market fit.
Ben explains his rubric for thinking about investment size and valuation starting at the 25-minute mark.
How much money does the company need for the next 12, 18, 24 months to achieve the de-risking points or value proof points. And then from there, that’s the amount you need to raise, plus 25%, because you need a little bit of buffer.
And then for that you do a trade 20%, 25% or 30%, depending on the investor set. That is the usual trade at the early stage.
There is a lot of great advice and insights in this interview if you’re interested in how seed stage fundraising works, and how an early stage investor like Ben picks his investments.