

Ask HN: How much would I give away on fundraising? - robot

I have a solid near-finished product in a new market with a lot of potential interest but no customers just yet.<p>I estimate the company and product to have around 1M - 2M value. How much would I have to give away from the company if I raised 500K? How much control would I lose of the company? Would I have to report to a board of directors?<p>I know I only gave rough figures, but I would be interested to even have rough answers.
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jasonlbaptiste
The valuation fundraising question is a really really hard one. Tons of ways
to go about it, but here's how I like to think about it:

1) Total up your monthly burn rate (include a 20% premium for shit happens
expenses) for the bootstrapped seed stage <= 300k works for most. Multiply
that by a range of 9-12 months. The 9 month period is the lower bound of what
you raise and the 12 month period is the upper bound of what you raise.

2) Hopefully you can give up <= 10% of the company. It depends on a per
company basis. Try to find someone to lead the round at that valuation. If
someone leads at that valuation, it's easier to get others in line.

3) Your goal over the next 9-12 months should be to knock it out of the park
and find a groove for customer acquisition/product market fit on a small
scale.

4) In 12 months you should be making good money that covers the burn rate
you've had over the past 9 months that helped calculate your seed round, but
now you want to lock up the market. This is where the very purpose of venture
capital comes in- you have a model that works and you want to grow + lock up
the market.

5) Raise the money and grow in a calculated manner. Rounds beyond the Series A
I won't cover here.

Hopefully this helps some. It's just one of many strategies to look at. To
some it may make sense and to others it may be absolutely wrong.

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answerly
A pre-money valuation of 1m or 2m would imply that you are selling 33% or 20%
of your company respectively in an equity financing.

At the level of investment you are talking about you may want to consider
convertible debt rather than equity. Here is a good comparison of the two:

<http://venturehacks.com/articles/debt-or-equity>

Regarding control, things like board seats are negotiable and will largely
depend on the type of investors you raise money from. Lots more on that topic
here:

<http://venturehacks.com/archives#board-of-directors>

It sounds like you don't have any customers or revenue at this point. If you
can get traction on one or both fronts before approaching investors you will
likely increase both your chances of securing investment and your valuation.

