HQQA008 When do you want to raise next?

What they mean

When do you want to raise next?

Why?

There is a presumption here that you will raise again. Once you start down the VC path, that is the norm. VCs are expecting huge things in a short time period, so you need to be on the right trajectory. It’s unlikely you are going to throw out enough cash to grow fast enough (or be profitable) without more cash.

So once you start getting funded, you need to have a funding plan for what and when you will inject yourself with more.

How much do you want to raise? Do you have a funding plan?

Trust me, hardly any founders have ever thought about this.

This is very similar to the question of how long is your runway. It also implies that you are going to raise next, and the next question that will come is how much do you plan on raising then?

Understand that investors get diluted at each funding event too. They will be sensitive to how much their ownership is and what future commitments they need to make to achieve their desired ownership stake (It doesn’t matter if you exit for a bill yo if they don’t own much of you).

This is an opportunity for you to talk about how you think about the growth trajectory of your business and your fundraising strategy.

How you answer this question will depend on the exact circumstances of the company and why you’re raising at the moment.

Clearly, you should be linking the next fundraise to the current one. You are raising to achieve defined milestones within a distinct time period. So what is your runway, what will your burn rate be and how will it change?

Why will you be in a position to raise a great round with favourable terms (that will not dilute the investors terribly!)? What will the startup look like then? Why will you be so attractive at that time?

How you look today and how you look in the future will be different. How different depends on your burn rate. High burn means less runway. Less time means less time to turn from less of an ugly duckling into a swan. More time means your metrics will, or will not meet the bar for the next round.

Is the amount you are raising really going to get you to the new milestones you are talking about? Do they make sense at all? If you want to ship x features, can you reallydo that with 5 people? If you want 100k new customers, does that equate with your acquisition costs and viral factor you might have? Sure your numbers will not be right, but they need to be plausible. The story you are telling needs to make sense. If you don’t know about storytelling, then take the pitch deck thinking course. It’s totally free and will save you a tonne of time!

Investors want to you be a success story and not a problem child, sidewards deal. If someone else is doing the next round there needs to be a reason. The investor is not asking for a date to check their calendar availability. They are looking to understand what the future looks like and how you are going to navigate each stage. As a VC funded company, you are back in Uni having to pass exams to reach the next stage. So, understand the test you are taking. Know the targets you need to hit and make sure they correlate the amount you are raising.

What you need to say

“As you know we are raising a bridge round of $1.6 million. We achieved a lot since our series-A but due to the issues with replacing our CTO, our product fell behind schedule.

We were fortunate to find Jim, who left from Expedia to join us and has us firmly on track again. Our metrics are not quite in alignment with what series B investors are looking for, but the great thing is we only need four months for us get there, at the current trajectory.

Assuming we can close this round by the end of the month, I will start talks with future investors in two month’s time. Assuming that’ll take us five months to close the round, and at our current run rate, this $1.6 million will last seven months. Our CFO, Mary, has plans already to extend our runway three months assuming that conversations don’t go as quickly as planned.

We are clear on what our key milestones are, in terms of product, financials and key hiring. Happy to explain them in detail. Well frankly, we would like support from investors in hiring key roles, so it would be a great conversation to have.”