Eureka Case 28 min Undergrad

How Much to Raise?

You are Valentina Rincón-Ospina, founder and CFO of a startup in Bogotá opening its Series A round. Your co-founder wants to "raise a lot now so we don't have to worry again." You're not sure: raising too much today, at the low valuation of a still-young company, could cost you the company in dilution.

The situation

To reach profitability you need a total of about US$ 40M. Today your pre-money is US$ 40M. If the next milestones (product, revenue) raise the valuation, future rounds will be raised at a much higher pre-money —say US$ 120M— which dilutes far less per dollar.

That's the logic of staged financing: raise just enough to reach the next value milestone, not the whole plan at today's low valuation. Raising it all now eliminates financing risk, but dilutes you the most at the lowest price. Raising too little minimizes dilution per dollar, but leaves you without runway to reach the milestone —and if you don't reach it, the next round doesn't show up (or arrives at a lower valuation)—. Sun Microsystems and Spotify staged their rounds by tying each one to a value jump.

Your job in this case: see how dilution and runway move with what you raise now, and decide the size of the round. The question isn't "how much money do I want?" but "how much do I need to reach the next value jump?"

The decision

What round size do you choose?

  • A · Raise the whole plan now (US$ 40M)
  • B · Raise for the next milestone (~US$ 12M)
  • C · Raise the minimum (US$ 5M)

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