How Much Funding Does Your Startup Need? Four Points To Consider

According to Crunchbase, Global venture investment last year totaled $643 billion, compared to $335 billion for 2020—marking 92 percent growth year over year. Funding your startup can be a scary process. You don’t want to ask anyone for money because you know that you are going to need an infusion of cash to build the company and get it off the ground. It is also difficult because most people tend to put money into ventures that can guarantee high profits in the beginning.

For startups, however, this is not always the case. While there are many ways to raise funds for your company, and some sources may be more suitable than others depending on your business plan, it is important to understand what kind of capital you need. And while there may be several components involved in figuring out how much money you need, we outline four key factors you should take into consideration before approaching investors or lenders with a proposal.

1. How much growth you’re looking for

There are a few ways to think about how much capital you need. The first is to look at how much revenue you expect to generate over the course of your business. This expectation also influences the valuation of your startup as we explain in this post.

The second is to think about how much you need to get to the next phase of growth. It is important to understand that the amount you raise will be different based on which one of these approaches you take.

For example, let’s say you are planning on a three-year growth plan and you have estimated that your revenue will reach $1 million by the end of that time frame. You would need $500,000 to fund the initial costs of hiring and to get your marketing and sales efforts off the ground. However, if you are looking to grow your company to the next level and you have an ambitious plan that sees you generating $10 million in revenue over the next five years, then you will need to have twice as much funding.

2. How much risk you’re willing to take

Another major decision point is the amount of risk you are willing to take. If you are raising money from friends and family, then you don’t need to worry too much about the amount of risk you are taking. If you choose to go down the equity crowdfunding route, however, then this becomes a much more critical issue.

The amount of risk involved in each source of capital is different. VC funds have the highest level of risk because they invest a high amount of money in a small amount of equity for a high return. On the other hand, bank loans have a lower level of risk and can be used for a wider range of business types.

3. How many equity shares you’re asking for

After you have a good idea of how much funding you need and how much risk you are willing to take, you can move on to figuring out how many shares you are going to sell at what price. In the early stages, you must keep the number of shares you sell as low as possible to ensure that the company is as efficient as possible.

As your company grows, however, you will likely want to sell more shares. At this point, you will want to consider increasing the number of shares you are offering investors.

There are a few factors you should consider when deciding on the appropriate amount of shares to sell. First, you will want to look at the amount of money you are raising. If you are raising a small number of funds, then you can afford to sell a lot of shares. If, on the other hand, you are targeting a large amount of money, you will want to be more selective about whom you sell shares.

4. What are your other funding options?

Another important factor to consider when figuring out how much funding you will need is your company’s other funding options. There are many sources of funding that you may not consider as funding options, but they can be very helpful. For example, if you are looking to raise small amounts of funding, crowdfunding websites can be a great option. Many of these platforms allow you to create a fundraising campaign and earn a percentage of the amount raised by friends and family who have donated to your campaign.

There are a variety of other sources of funding as well, including corporate sponsors and government grants. You may find that one of these sources of funding would work better for your particular situation.

Conclusion

Before you approach investors or lenders with a funding proposal, you need to have a good understanding of how much capital you will need and what type of risk you are willing to take. You also need to take into account the other sources of funding that we know are available to us.

We can then look at the returns we can expect from each source of funding and determine which ones are worth pursuing. From there, we can decide on the appropriate amount of funding we need. Although it can be a scary process, raising money for your startup is crucial. The right amount of funding can help you grow your business and make it even more successful than it was before.