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Fundraising enough for profitability or keep it within a more reasonable seed round range?

Will investors look down on us asking for $1M seed round (convertible note) and then telling them we’ll be raising another $500K bridge round to reach profitability? Will investors not like us preparing or expecting a bridge round? I’d like to raise $1.5M and call it a day, but at that point we’ve been told it’s too high for a convertible note. Any thoughts??

      • Yup. One of the things I learned a long time ago is that most financial projections are off; they’re only guesses.

        You can’t tell how much money you’ll need until after you start, and even then you have to continually readjust your plan to account for increases or decreases in revenue.

        Maybe July is a slow month and you were expecting to have more sales that month, well now you have to readjust your yearly projections.

        Maybe in September your sales increased 200%, so you started hiring some people thinking that your company is now taking off, when unexpectedly, October sales drop dramatically and now you’re either trying to desperately scramble for a bridge round or you’ll have to fire some of those new people that you hired.

        I consider it extremely naive for the OP to think that he knows it will take exactly $1.5 million to reach profitability. I would say just raise as much as you think that you can raise so that you’ll have plenty of runway to work with if your situation worsens.

        Also, be conservative with how you spend the money; that will make it last a lot longer than if you spend it all in the first six months and have to come crawling back to investors.

        Reply

        • While your comments about the uncertainty are valid, it is still a necessary exercise, one valued by investors, for a founder to create a budget with recognized and achievable milestones. Reaching profitability (or at least revenue) is often a very important (maybe the most important) milestone, so of course the OP should calculate what it will take to get there.

          Sure, it is a guess (as are all budgets), but hopefully it is well thought-out, detailed, logical and realistic. If so, then investors should respect it for those qualities and feel more comfortable investing.

          Investors want to remove as much risk as possible from every stage of growth, and early on, financing risk (ie. not having enough money to execute the plan) is a big one that should be removed by raising what you actually need, not what you think is palatable for investors.

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