5 criteria to correctly size & time your fundraising:
- Allow for a 6 months fundraising process – you should thus have12 month cash cushion at a minimum so us not to come under undue pressure;
- The amount to be raised should not be more than 40% of pre-money valuation;
- Furthermore, the amount to be raised should be enough to allow “cash break even” within 3 years (excluding guaranteed or known external financing) & do not require a return on the market before 30 months.
- Sizing limits & criteria:
- For employees: potential dilution (through award of warrants, options, bonus shares, etc) should be limited to 15 % of money raised and 5% of pro-forma shareholding.
- For the founders / managers: potential dilution should be limited to 15 % of money raised and 7.5% of pro-forma shareholding.
- Cash-out limited to a minimum and in any case less than 15% of the amount raised (note: cash-out by founders / managers is incompatible with award of warrants, options or other dilutive instruments).
- Momentum should be created from signing on an anchor or reference shareholder & the first third party investor (who should jointly subscribe to 50 % of the funds to be raised) and allowing closing within 3 months.
source: Alexander Partners
to be continued…