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Ask HN: Raising VC – better to ask for more money or less?

4 points by up_or_down 11y ago

Strange question, but please bare with me. We are raising VC money. We have traction, business plan and all that. We understand our place in the dynamically changing market and want to be reasonable about raising. Hence our business plan is flexible. We want to grow the company, product, userbase and make sure nobody loses so we evaluated minimum and maximum scenarios. Our preconditions are: 1) We are aiming at 5-9M valuation. So that we feel safe about goals for next round. 2) We don't want to over give up more than 20% equity for seed. Now when we go to meetings with VCs there are 2 scenarios: 1) We ask for too little (say $1M) and are under the radar for VC funds - they say - interesting, but this is too little for us - our comfort zone is is $500k - $1m [at least] and we want more parties involved. 2) We ask for more ($3M). In this case VC says - the valuation (>$12M) is too high because it's early stage. Our honest, direct answer to this would be to say: "We can achieve our goals/ milestone on $1M (because we can convince team to boostrap a year longer) so we can honor your valuation expectations. Also we can overachieve our goals / blast past next milestone on $3M - and we can accept this responsibility, not because we are greedy, but because we want to work with you and understand that logistically that the number may suit you more." Nobody wants to hear honest answer because it would seem we don't know what we want / do (which is wrong). Now I am not asking what the valuation should be (ha), but rather: Q: what is the best way to approach new VC in a scenario where the amount you want to raise is flexible? Ask for more and be ready to step down? Ask for less and have an explanation of why you step up?

jeffmould 11y ago
From your wording, it sounds more like you are trying to structure the amount you are trying to raise based on each VC you are meeting with. If this is the case, IMO, this is the wrong approach. Before you start meeting with VCs you need to figure out what the minimum and maximum you want to raise is. From there agree on a number internally and present that number as part of your pitch. You should then seek out potential investors that invest in that range, and that are more importantly a match for the type of business you are in. Don't fluctuate your raise solely based on the VC you are meeting with. It also sounds like you are just scheduling meetings to have meetings, without really determining if the investor is even a good fit for your company at all. Look at previous portfolio companies and any press around them. Prior to scheduling a meeting do your own due diligence on the investor to understand what their range is and how they invest (are they a lead, prefer to co-invest with others, etc..). That way prior to even scheduling a meeting you are not wasting each other's time meeting with someone who only invests at X round or doesn't invest less than X dollars. My recommendation would be to determine what the minimum amount you need to raise is based on a clear timeline and milestones. From there add a bit of a cushion, but don't over shoot the number enormously. In your pitch clearly layout how much you are raising and what that raise will get you too (what milestones and how long will that money last). If the investor is serious as you discuss further with them you may find your valuation changes slightly or the amount you are willing to give up changes slightly. Never ask for less than you need. The amount you ask should always be based on what that money will achieve as far as milestones. The investor wants to know what their money is buying. For example, will $1M get you to $10000MRR or will $1M only get you to $1000MRR. Also, as a side note, your question in general comes off as skeptical about your whether your business can succeed down the road. Statements like "we understand our place in the dynamically changing market", "make sure nobody loses", are I am sure well intended, but at first glance raise a red flag (at least to me) about whether there is a chance the business will be viable in a year. This may be just me reading into your question, but if not you may want to be cautious with your wording in meetings.