HQQA003 Why do you want to fundraise [$10m]?

VC Question: Why do you want to fundraise [$10m]?

What they mean by fundraise

[yes, I know “fundraise”… SEO]

Whilst this is a common-sense question, an investor can also ask it if they think you are raising too much or too little. They may have got a sense you are not quite sure you know why you want that number. If you keep getting asked it, preempt it upfront.

As one founder blogged recently “in San Francisco they said we were raising too little, and in Canada, they said we were raising too much!”

This question is quite similar to “how are you going to spend it”, but more directly you need to explain the specific logic as to how much you are raising. They want to know your thinking!

This question could be rephrased as “why do you want to raise $10 million? Why not five, why not 15?” You, therefore, need to ground this question into your specific plan from the financial model, the competitive dynamics of your industry and your traction to date.

If you are more experienced and have a track record, you have more credibility to ask for larger amounts of money.

You never want to have just one reason for the fundraise number; it should be multivariate. What is the context of your industry? Who are the competitors, have they raised a lot of money? Have you really figured out a scalable acquisition channel, so the time is now to go boom boom? Has something happened in the industry which creates a compelling opportunity to capitalize on it? Investors do not care that you are broke and need to make payroll. They want to hear you want to make bankroll bitches!

What you need to say

“We believe that the big data market is at a point of inflection. We don’t believe that first mover advantage is the best strategy since it involves a lot of market education, what makes more sense is to be a fast follower.

Our key competitors are Google and Facebook who have both raised $25 million, whilst they have raised more than us, our product is very similar, but improving faster due to our extensible architecture, which has allowed us to secure more landmark customers since it is easier to integrate. They have spent a lot of their funds educating the market through marketing spend.

We believe this is the perfect opportunity for us to raise a more meaningful round to firmly position ourselves as the leader in this industry.

According to our financial model, we need between nine and $14 million to hit our key objectives. We are going to the market to raise $10 million since this is the minimum amount we need, and we can see if investors love our plan and want to commit more. This gives us a runway around 20 months unless we are more aggressive. I would be happy to take you through the key assumptions in the model.”

Aka…