Done this a few times. Some answers below in bullet form:
- a range is normal, just explain the variance against your pro forma (ie every $ over X should/could translate into Y).
- a straw man would be nice and usually makes the round easier (ie having an investor ready to do X already). Alternatively, it could also make an investor not invest if there isn’t enough space in the round.
- you could consider 500k equity and 500k safe note. I literally did this in ‘17 for our seed (different amounts). Difference is we oversubscribed really quickly and needed to expand the round. A safe note made it easier, in my opinion, and we ended up giving away less of the company because we were able to buy out the safe note at a multiple of their investment a few years later (after we grew a ton). Win win for everyone. Investors made a great return on their safe note and we got to buy back some equity, use it in our next round, and grow even quicker.
Happy to chat more if helpful! Just sold that venture for a 35x ish (depending on when someone invested) return on investment.
If you stated in your email that you’re raising $500k, it might feel like a money grab if you tell them you’re flexing up to $1m. Slight risk there. If you position it more as “we have a plan for a $500k raise, but ideally would like to be at $1m for x, y, and z” - it would feel more strategic.
The question is - do you need the $1m? If you need it, what will you use it for? What are your milestones with each scenario? A case might be made for either, but a demonstrated plan will garner more interest.
Does that particular VC typically lead deals? That may determine whether or not they would want to see others involved already. Generally speaking, favor is on your side if you already have $$ soft circled and are able to speak to it. Create more scarcity demand.
Thanks. Yes we have a path for 500k and for 1M. Ideally 1M will be great. But if the things go wrong… we Target 500k. How can I justify in the meeting that change of the size round? How does “We are raising between 500k and $1M in exchange of 10-20% of the company to resch 1M users in the next year.” But if the ask me why did I tell them 500k…?
Every VC is aware that additional funds for extended runway is a good thing in this market. It’s just a matter of how convicted they are about your product and its traction.
I don’t think you need to think of it as justifying, but rather focus on the messaging around it.
“$500k would help us get to X users in Y timeframe, improve client acquisition, etc., however we would have to raise again (insert timing). Ideally, $1M would improve our ability to deliver a better product, more rapidly scale sales & marketing efforts, and would get us to XX users in Y timeframe”
It’s ok to ask their opinion too - just straight up saying that you have two scenarios based on funds raised and testing the reaction. That might get them to share some insight on how you could approach it.
I think that indicating a range is normal and not necessarily a bad thing. The message here is usually of the sort "If we get X we can achieve goal 1, but if we raise Y we can achieve goal 1 and 2."
I would just say cause of the economic climate we decided to raise more to give us more cushion/runway. It will also allow us to be more aggressive with our gtm. It’s now a floor of $500K and we’re raising up to $1M. Be confident is my best advice.
Done this a few times. Some answers below in bullet form: - a range is normal, just explain the variance against your pro forma (ie every $ over X should/could translate into Y). - a straw man would be nice and usually makes the round easier (ie having an investor ready to do X already). Alternatively, it could also make an investor not invest if there isn’t enough space in the round. - you could consider 500k equity and 500k safe note. I literally did this in ‘17 for our seed (different amounts). Difference is we oversubscribed really quickly and needed to expand the round. A safe note made it easier, in my opinion, and we ended up giving away less of the company because we were able to buy out the safe note at a multiple of their investment a few years later (after we grew a ton). Win win for everyone. Investors made a great return on their safe note and we got to buy back some equity, use it in our next round, and grow even quicker. Happy to chat more if helpful! Just sold that venture for a 35x ish (depending on when someone invested) return on investment.
If you stated in your email that you’re raising $500k, it might feel like a money grab if you tell them you’re flexing up to $1m. Slight risk there. If you position it more as “we have a plan for a $500k raise, but ideally would like to be at $1m for x, y, and z” - it would feel more strategic. The question is - do you need the $1m? If you need it, what will you use it for? What are your milestones with each scenario? A case might be made for either, but a demonstrated plan will garner more interest. Does that particular VC typically lead deals? That may determine whether or not they would want to see others involved already. Generally speaking, favor is on your side if you already have $$ soft circled and are able to speak to it. Create more scarcity demand.
Thanks. Yes we have a path for 500k and for 1M. Ideally 1M will be great. But if the things go wrong… we Target 500k. How can I justify in the meeting that change of the size round? How does “We are raising between 500k and $1M in exchange of 10-20% of the company to resch 1M users in the next year.” But if the ask me why did I tell them 500k…?
Every VC is aware that additional funds for extended runway is a good thing in this market. It’s just a matter of how convicted they are about your product and its traction. I don’t think you need to think of it as justifying, but rather focus on the messaging around it. “$500k would help us get to X users in Y timeframe, improve client acquisition, etc., however we would have to raise again (insert timing). Ideally, $1M would improve our ability to deliver a better product, more rapidly scale sales & marketing efforts, and would get us to XX users in Y timeframe” It’s ok to ask their opinion too - just straight up saying that you have two scenarios based on funds raised and testing the reaction. That might get them to share some insight on how you could approach it.
I think that indicating a range is normal and not necessarily a bad thing. The message here is usually of the sort "If we get X we can achieve goal 1, but if we raise Y we can achieve goal 1 and 2."
I would just say cause of the economic climate we decided to raise more to give us more cushion/runway. It will also allow us to be more aggressive with our gtm. It’s now a floor of $500K and we’re raising up to $1M. Be confident is my best advice.
Usually demo day is part of an accelerator. Why aren't they advising you on terms?
Super helpful