Investors want to know specifically what you plan to spend their money on. Rookie entrepreneurs have vague and confused answers that will leave them dead in the water. Experienced entrepreneurs have detailed and logical answers that convey the confidence that investors need to see.
To determine how much money you should raise, you have to figure out how much money you need to get to your next significant milestone. Getting to the next milestone is important because achieving the milestone will set you up to raise additional funds down the road, if necessary. If you only get halfway to a milestone without much to show for the last round of funding, investors will perceive you as a risk and you’ll take a hit on your valuation (if you get any interest, of course).
After you’ve determined how much you need to hit your next milestone, add in a six-month buffer by multiplying your post-investment monthly burn rate by six. Things always cost more and take longer than expected, so you need a buffer to protect yourself. Add these two numbers together – the milestone cost and the buffer – to figure out about how much money you need to raise.
On average, the number of months of operations funded is usually around 18-24 months.
