CEOs and founders often say they need is $5 million to bring their company to market. In many cases, this is true, but raising that much capital for a young company is often difficult and very expensive. So, how much capital do you need to get your company to the next level? Frequently, founders’ initial estimates tend to be high, as they think ahead several steps in their company’s development. Raising capital and selling equity is the most expensive way to build a business – equity in your company, after all, is the most valuable part of your company. ($100,000 at an early stage buys a much larger percentage of the company than it does when you are in the growth stage.) Customer sales, loans and so on are always better than raising equity, so when it does come time to raise capital, you want to raise just enough to get to the next level and have a little cushion. For a typical company looking to make it to $25 million in sales, here is an outline of capitalization stages and the funding you should be targeting at each level:
At each stage you hit, the valuation of the company increases exponentially. Yes, it might take $5 million in capital to get you to $25 million in sales in that last stage, but rather than selling $5 million at the beginning, if you start with $250,000 at an earlier stage, $1 million at the next round and so on, you will own more of the company at the end. And at $25 million, the next level of funding could see your business become a platform company, acquiring other companies or going through recapitalization. If your company is looking to take the next steps in growth, contact me at firstname.lastname@example.org for more information on the types and levels of investment you should be targeting.