Some startups raise $100,000 seed rounds, others raise $1 million.How do founders know how much to raise, and how do they avoid over-raising?
We asked three founders this last week at Business Insider’s Startup 2012 conference. They all agreed: for seed rounds, the amount is arbitrary.
“I picked $1 million. It was a good round number,” one of them said half-joking.
Here’s what each had to say:
“I think at a seed stage it’s completely arbitrary. What you’re supposed to do is predict what you’re going to need in the next 18 months, which we did — but there’s no way to predict that, I don’t think. We have three cofounders, and we can build the product alone. And if it doesn’t take off, well then we don’t need anyone. But if it does take off we’re going to need three engineers, four engineers. I found the process to be pretty arbitrary, shockingly so.” – Josh Miller, cofounder of Branch – raised a $2 million seed round:
“It’s completely arbitrary. $1 million sounds cool, it’s a round number! Some startups are raising $500K and some are raising $1.5, so I figured I’d just raise 1. It’s nice and simple. My answer if someone asks how I’m going to spend it is, ‘Ok, we’re 3-6 engineers times 1.5 just buffer and we’ll last a year and a half,’ and that’s the maths I do afterwards to make it make sense, but it’s just bullshit.” – Sahil Lavingia, founder of Gumroad – raised $1.1 million seed round and $7 million Series A
“The way you decide how much to raise changes depending on what stage you are. So as you get into Series A and later, you can actually calculate how much you need for 18 months of runway. Seed stage raise as much as you possibly can, and Sahil is totally right.” – Brad Hargreaves, cofounder of General Assembly – raised $4.25 million
Here’s a clip of Sahil Lavingia on the panel, discussing how he’s raised money for Gumroad: