The first is to raise only what you think you need.
You Google ‘budget template’. Download it. You enter your estimates for year one through to year five, add some contingency and decide that you need to raise $X to achieve specific milestones to demonstrate traction.
This is a frugal plan. It’s designed to keep the business lean and not give away too much equity in the company.
The second school of thought is to raise more than you need.
While the budget construction might be the same, I think about the final numbers as the minimum I need. And instead of raising that amount, see how much capital I can raise above it.
While investor demand will ultimately determine how much I can raise at a given point in time, I follow the second school for three reasons.
First, building a company is unpredictable. It almost always takes longer than expected. Raising more capital means you can weather storms for longer.
Second, and for a similar reason, it’s important to have the capital to pursue opportunities you can’t see coming.
Third, I focus more on value creation and less on dilution. The right investors will help a company grow into a huge business and I expect to depart with ~20% of the company at each round.
The bottom line is that businesses don’t usually grow without a capital injection at some point. I prefer to own a proportion of something huge instead of a 100% of nothing.