This is dilemma that founders face while raising.
Too much?
Too little?
Too early?
We do not have the right answer. But we have a framework.
Our framework is simple. Answer 3 questions honestly, brainstorm with your team, and decide before you venture out to raise
End game: For the valuation to go 3x for the next round, what milestones do you need to achieve with this fund raise?
Process: How much money are you raising to reach these milestones?
Start: Does your current business and valuation support the kind of money you want to raise?
Investors want to invest in growing businesses. Hence, they want to see rapid growth in both business and consequently valuation. In early stage, it is difficult to spot unicorns, so we will not think in those directions. Instead, we will focus on growing the business and its valuation to at least 3x.
Sub questions: What milestones do you need to achieve? Do you have a realistic plan that is not based on "Oh we will go viral"? Do you have an understanding of the resources you need to achieve (and preferable exceed) the milestones in a set time frame? Is this a hope trade OR a calculated hypothesis?
As an early stage founder, you have to be careful with the amount of capital you raise. Incoming investors are hoping for a minimum 3x gain. You need to raise enough money that will not only help you meet, maybe exceed expectations, but also account for an emergency buffer in case things go wrong. Worst offenders are - "Looking to raise anything between 5cr to 10cr" - a guessing game, and changing funding ask in the middle of diligence!
Sub questions: Are you raising enough money to last you till the next round? Are you accounting for emergencies and have a buffer? Do you have an execution plan ready? How will you measure your success with respect to the milestones?
You have to be realistic in your assessment of your business. Too often companies with little to no traction, less customer feedback and lack of concrete hypothesis try to raise large rounds. This becomes difficult to assess, and will quickly be put in the 'Hard to understand, lets pass' bucket. Additionally if you try to raise a lot of money while trying to optimize for dilution, this jacks up valuation and puts off incoming investors. Hence there has to be a fine line between reality and opportunity.
Sub questions: Does your current business support your future plans? How soon will your efforts translate into outcomes? Are you trying to raise too much? Are you building in very optimistic projections?
We can not be playing guessing games with founders during the time of a fund raise. Which is why we prefer founders having answers to the above questions before they start reaching out to investors.
If you are raising and you have answers to the above questions, please feel free to reach out to either Dhruv or Siddharth.