How Much Money Does Your Startup Need?

Once you have struck upon your big idea for a business and made a plan for how to begin, the next step is to raise up enough cash to get started. How do you know how much money you will need?

Here are 2 strategies for determining how much you need to fundraise.

Set a Goal For First-Round Funding

One action plan suggests that you start with careful research to set a funding goal for your first stage of business. This includes talking with potential clients or customers to understand what they want and how much they are willing to pay for your product or service. It also includes talking with investors to see how highly they value your business idea and model. If you hear numbers you like, it’s probably time to change something to make your startup more desirable. Once you know how much your product or service will cost you, how much your customers will pay and how much investors are willing to put into your company you can set a funding goal to raise from venture capitalists, angel investors and even friends and family if needed. This allows you to give up only as much equity in your firm as is necessary at the outset.

Raise Double Your Current Needs

Another strategy says it is best to come up with twice as much funding as you think you need for your first round. This idea is based on the claim that fundraising never stops with small businesses and it is, therefore, better to raise way more than you initially need so that you can easily focus on getting that beginning product or service out to customers and then be ready to make improvements and expand without having to stress over fundraising at least for those early stages. While obtaining that much capital may cost you a great deal in equity at the start, the hope is that your company will be able to rapidly grow and earn you back your stake in the company quickly.

Neither strategy is necessarily better; it all depends on the specifics of your product or service and your business model, but both are worth considering when you are ready to look for financing.

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