VC Question: What will your runway be for this round?
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What they mean
If you have a strong business fundamentally, and you tell investors you’re raising money for 24 months, then they are going to think and then probably say that you are not spending money fast enough and being aggressive in pursuing growth.
If you say that you’re raising money for 12 months, they will either think you are ignorant, since it takes a long time to raise money, and you will be back out fundraising in a matter of months, or that you are growing so fast that you just need to validate a few things before you raise a considerably larger round and therefore this could be viewed as a bridge round.
Typically, the best answer on average is 18 months. This gives you 12 months to have your head down and execute and six months to fundraise.
They will also divide the amount you are raising by the months to figure out what you burn rate is. They will then compare that against their heuristics and portfolio companies to see if that feels high. If your burn rate to headcount ratio is low they will be impressed.
As usual, answer this with a thought process, not a specific number and stare. Investors want to see you are considered.
What you need to say
“Our base plan is 18 months. That obviously gives us 12 months to execute and six months to raise. We still need to validate our scalability through the affiliate channel.
If we are able to generate converting leads at $15, then our CAC works very well with our assumed LTV, and we should more aggressively scale this marketing channel.
Talking with the head of marketing, we might drive an additional $500K through this channel, which would reduce our runway by three months. The theory being that we could go to market and raise a larger round given our high-growth rates.
Do you agree?”
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