How much capital should you raise in 2024?

Author’s note: The advice in this blog post is based on our experience at LAUNCH. Founders' experiences may vary, especially considering unique factors like startup verticals and the shifting market.
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Founders often ask, "How much should we raise?" The answer varies by market conditions. As of Q2 2024, the fundraising market is still sluggish.

To understand how much money to raise, let’s first review common fundraising rounds and what traction we typically see at each.

• Angel / Friends & Family:
  • Form the team, launch an MVP, and find the first users.
  • Target raise: $25K - $500K.
• Pre-Seed:
  • Validate the business model, serve first customers, and make key hires. By now, startups often have a live product with users or early revenue.
  • Target raise: $250K - $1.5M.
• Seed:
  • Product/market expansion, sales/marketing, and team growth. A good target is $1M ARR by this stage.
  • Target raise: $2M - $5M.
• Series A:
  • Drive growth, operational, and product expansion. Investors often want startups to reach $3M ARR by this stage.
  • Target Raise: $5M - $10M.

Second, let’s discuss what to consider before raising money.

Goals: Define whether you're hiring a sales team, launching a product, serving a customer waitlist, etc.

Revenue Targets: Identify the revenue needed for the next milestone.

Need for Funding: Check if the current cash in the bank is enough to meet the next milestone. Non-dilutive funding, such as grants, can sometimes be quicker than finding dilutive funding from angels or VCs.

Bandwidth: Fundraising is a full-time job, in addition to scaling a startup! Solo founders tend to face heavy time constraints. Some teams pick one founder to lead the fundraising process so other founders can focus on product and customers. Keep in mind the entire fundraising process can take months.

Dilution: If founder equity becomes too low, founders can risk losing motivation to continue scaling the business. Keep in mind these commonly accepted benchmarks for combined ownership among co-founders after the following rounds:

• Pre-Series A: 60-75%
  • This early dilution is typically a combination of an angel, pre-seed, and seed rounds. Dilution can also come from an employee stock option plan (ESOP).
• Series A: 40-50%
• Series B:  30-40%
• Series C:  20-30%
• Series D:  10-20%
• IPO: 5-10%

Check out these sources to learn more about dilution [1, 2].

Runway: This is the number of months a startup has at its current burn rate before cash is gone. At LAUNCH, we suggest founders raise enough capital for 18 months of runway. It is important to consider current and projected burn rates when raising funding to avoid needing to raise bridge/extension rounds, which create excess dilution and can be a distraction.

Valuation: This reflects the company’s market value and dictates equity for investors, founders, and employees. For instance, a $500K raise at a $5M post-money valuation gives 10% ownership to investors.

• Investors typically use ARR or annual revenue as a multiple of valuation.
• In 2024, a floor valuation in early rounds is about $5M post-money.
• Avoid raising a large round at a low valuation to prevent excess dilution.
• High valuations can attract future investors but pose risks if growth projections aren't met. This can lead to “down rounds,” where a startup must raise a round at a lower valuation than its last raise.
• A recent report from Kruze Consulting shed light on the current median market valuations in Q1 2024.

• Seed: $15M
• Series A: $44M
• Series B: $114M

Food for thought on rounds and valuations from investors:

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Next, let’s make a plan to raise funds.

At LAUNCH, we advise founders to plan for multiple scenarios.

• What can you achieve with $500K?
• What can you achieve with $1M?
• What can you achieve with $2M?

Engage with founders who’ve closed rounds to learn from their experiences. Find out what metrics they reached and what fundraising strategies they used.

Decide who on the founding team will manage the fundraising process. Typically, this is the CEO’s job.

Crunch the numbers! Investors will want projections showing how the business will grow after funding. Founders can use the LAUNCH financial model to plan their fundraising journey.

Finally, it’s time to start talking to investors.

• Make a list of investors that are suited to your business model, vertical, and stage. There are plenty of investor lists and threads floating on X. Crunchbase is another good source.
• Start reaching out! Warm intros from founders or investors are best.
• Attending an accelerator like LAUNCH can help you get access to many investors in a short time.
• Keep in mind that fundraising is a numbers game. Closing a round can take hundreds of investor meetings.

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LAUNCH helps builder founders hit growth and fundraising milestones.
Pre-revenue? Apply to Founder University 👉 https://www.founder.university/

Approaching PMF with paying customers? Apply for funding at launch.co/apply

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