Question 07 · 💰 Fundraising
What should you calculate before deciding how much to raise?
How much to raise isn’t a guess or the maximum someone offers. It comes from a simple spreadsheet showing what the money will pay for and how long it will last.
Answer with numbers: what are your monthly fixed costs? How much does growth cost? If the product gets more customers, how much will the infrastructure bill increase? How much buffer do you need for delays or a contract that takes longer than expected?
Run both an optimistic and a pessimistic scenario. Then ask whether you'll need another round.
Watch out for the valuation trap (the value an investor says the company is worth): raising at a high valuation and then needing money at a lower one can force you to give up far more of the company than you expected. The largest available round isn't always the best one.
Build the basic spreadsheet
Separate costs into three groups. Fixed costs: salaries, rent, tools, accountant. Growth costs: planned hires, marketing, sales. Variable costs: anything that increases with each new customer, such as servers, AI model usage, and support.
For AI products, pay special attention to the third group. Each customer who uses the product more may generate more API calls (paid connections your system makes to the model service). Measure the cost per customer using real usage data, not the price list.
Two scenarios, month by month
Project both scenarios month by month, not just as totals. In the optimistic scenario, sales come in at the planned pace. In the pessimistic scenario, sales come in more slowly, contracts take longer to sign, and some costs rise. See which month cash runs out in each case.
The difference between the two scenarios shows the size of the risk. If it’s large, you need more buffer or a ready-to-use cost-cutting plan.
The next round
Ask whether this money will get the company to the point where it can support itself or whether it will need another round. If it will need another, what needs to be ready for that round to succeed? That becomes the goal for this raise.
Valuation and dilution
Valuation is the amount an investor says the company is worth. Dilution is the share of the company you give up in each round. Hypothetical example: raising 2 million at a 10 million post-money valuation costs you 20% of the company.
If the company doesn’t grow as expected and the next round happens at a lower valuation, the same amount costs a much larger share. There may also be clauses that protect the previous investor. A realistic valuation today is often safer than an inflated one. This isn’t financial advice; consult a lawyer about contracts.
- List monthly fixed costs using actual amounts.
- Separate the cost of growing from the cost of running the business.
- Measure infrastructure cost per customer using usage data.
- Project the optimistic and pessimistic scenarios month by month.
- Decide what needs to be ready before the next round.
- Calculate what percentage of the company each offer costs.
- Using cloud list prices instead of actual usage, which is often higher.
- Looking only at the total without seeing which month cash runs out.
- Choosing the offer with the highest valuation and ignoring the clauses.
- Fixed costs, cost of growth, infrastructure per customer, and a buffer.
- Always model two scenarios: good and bad.
- A high valuation today can cost you dearly tomorrow.