A guide for founders on how much to raise in their first round...
Antler has shared a cheat sheet to help founders assess their ability to raise capital in their initial funding round -
When it comes to fundraising, two factors can make all the difference: Founder pedigree and Traction.
1️⃣ Founder Pedigree: The less traction you have, the more your background matters. Investors look at your past to assess whether you can deliver in the future. It's about limiting execution risk.
This isn't necessarily rational. Great founders get overlooked because they don't fit the typical pattern. But with thousands of similar opportunities, it's a real filter for investors.
2️⃣ Traction: Traction beats pedigree. When you present more than just an idea on paper and your product has gained some traction, your ability to raise increases. Lower-profile founders can raise funds when their idea becomes more than just an idea.
Some factors can change the game.
→ "Levelling up cheats" move you one field to the right in the fundraising matrix, potentially increasing your chances. These might include factors like having a strong co-founder, industry expertise, or unique insights.
→ "Handicaps" move you one field left, possibly making fundraising more challenging. These could be factors like lack of relevant experience or a difficult-to-explain product.
There are two must-haves without which you won't be able to raise, regardless of pedigree or traction:
→ Fundraising-ability: You need reasonable fundraising skills. Networking, sales skills, storytelling, and running a tight process are crucial.
→ Market attractiveness: Your market must be significant and attractive. At early stages, it's binary - either investors get excited about the opportunity, or they don't.
Remember
→ Valuations are a function of capital raised. Assume 15-25% dilution irrespective of the amount raised. For example, if a team raises 800k, the valuation will likely be between 3.2m - 5.3m.
→ LinkedIn profile beats pitch deck in very early stages. Many investors will check your LinkedIn before deciding on a first meeting or looking at your pitch deck.
When is this wrong?
→ Numbers are purely directional. They've been validated with experienced investors, but they're not exact.
→ This model is primarily for software startups. Biotech & Hardware companies play by different rules.
→ Copycat models are very binary. Experienced teams can attract large funding, while others struggle to raise anything.
→ Raising from a rich uncle or family/friends who aren't experienced venture investors follows different rules.
Remember, great founders come from all backgrounds. If you don't fit the "classic" profile, you might need to prove more in the beginning, but there are countless examples of founders without traditional backgrounds building awesome companies.
What's your thought on this?
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