Great article by Charlie O'Donnell:
More simply, the better the team, the lower the risk, and the higher the expected outcome, the more you're going to be willing to give a team and the longer you'll let them go until their next fundraising.
(...) Usually, teams are asking for enough money, plus a cushion, to get to some milestone roughly 12-18 months out.
So, ask for more and you're get a higher price IF the investors think you can handle it and you need it.
Generally, each round is going to set you back between 15-30%.
The way that rounds always end up diluting by 15-30% seems mystifying to industry outsiders. How much will I get diluted if I raise $500k? 15-30%. What if I raise $1m? 15-30%! $10m? 15-30%!
This reflects a deep pragmatism of entrepreneurship and venture/angel investment, based on the fact that no one has any god damn idea what a startup is worth anyway, so the figure is instead chosen based on a balance of:
- Not diluting the entrepreneur so much that they become demotivated
- Leaving room for further funding rounds without demoralising the founders
- Providing enough cash so that, if the founder was roughly in the right ballpark, they will get 12-18 to execute on their vision before needing to raise another round or become cash-flow positive.
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