When you come to the conclusion that it is time to raise money, raise MORE than you need. Now that you have decided…
Yes, I have something.
My product is working.
My user base is growing.
The hurdle ahead of me will need real capital investment.
… then, don’t raise just enough money. I have seen this same mistake, again and again and again! Every new entrepreneur thinks they can minimize the equity they have to give up, raise just enough for a few months on this new strategy, or just to get past that next hurdle. Everyone of those that think that they can do it on the cheap, that assume that their strategy will work give or take a few months because, hey, they carefully thought it all through, they lived and breathed this concept for a few years already, they know what they are talking about, is foolish. A company leader that approaches this problem this way is being reckless and jeopardizing the future of the company and its product — yet, I have seen it again and again (etc.), and seen it again after seeing these company leaders strongly cautioned. Don’t make this easily avoidable mistake.
Do not raise exactly what you need (or just a little bit more), based on projections, blah blah etc. etc. Be smart, recognize that you are not psychic and the unforeseen and the undesirable will always happen and alter your plans. Now that you have decided to bite the bullet and raise the VC money, don’t do it part way, or you will only get part way to your success. Part way to success is failure.
How much more?
Depends on how much of your company you are willing to part with and how much you need to set aside for potential future fund raising, and etc. You want to have enough money to carry you at least a year out, comfortably, and based on the new strategy that this money is being raise for — don’t assume that you will be able to go back to the other strategy temporarily. Always plan for the worse. You will be happy that you did. And, if you are raising another round in less than a year to take that next planned step, you wont be racing against the clock to not run out of money — have that cushion to find the best deal that you will also be comfortable with. ;-)
Finally. I cannot stress enough, the number of times I have seen a start-up be overly optimistic about their path ahead and ask for too little or just enough money. Later on they had to give away huge chunks of their company to just stay afloat or just, simply, sunk. Approach fundraising with care and consideration, but then go all in when your product and company are ready.
The Product Guy