The Types of Raises
Standard Raises by Stage and Milestones
The Standard Raises by Stage
When asked how much a startup is raising for investment, they often quote their total raise for the life of the startup. They lean toward the big picture and the total amount they think they will need. However, approaching a raise this way can be overwhelming and oftentimes, may cause the founder to lose focus on the goal.
The ideal way to approach raising for investment is by breaking the raise into smaller rounds. By doing this, the founder no longer has to spend an excessive amount of time on the fundraising process.
There are some things to consider when breaking the raise into smaller rounds. Below offers some guidance on how to break down a startup fundraise into tranches, or what some call, rounds.
1. Family and Friends Funding
- Amount: $10k to $100k
- The purpose of family and friends funding is that it helps set up your legal entity, intellectual property, and basic prototype.
2. Pre-seed
- Amount: $250k
- The Pre-seed raise is meant for the initial research and beta product development.
3. Seed
- Amount: $500k to $750k
- This raise is for building out the product and closing initial customers.
4. Seed +
- Amount: $500k to $750k
- The purpose of the Seed + round is growing the sales and establishing repeatable sales and marketing processes.
5. Series A
- Amount: $1.5M to $3M
- This raise should focus on growing your sales past $1M annual revenue.
6. Series B
- Amount: $1.5M to $3M
- The Series B raise is for growing your sales past $3M annual revenue.
- One thing to remember is that if you raise too much money, too early in the life of your startup, you will find yourself giving away too much equity. In order to avoid giving up too much equity, it’s important to raise in stages.
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