When I talk to entrepreneurs that are in the process of raising money I always like to ask “what percentage of the company are you looking to sell to investors?” Inevitably, the answers come back all over the board, often ranging from 25%-35%. Entrepreneurs also like to quote a range when it comes to how much money they’re raising e.g. we’re raising $2M-$3M at a $4M pre-money valuation.
Here are a few thoughts on what percentage of the company entrepreneurs should sell to investors:
- Entrepreneurs should raise enough money to run the business at a certain scale for 12-18 months in order to hit a major milestone so as to raise more money or achieve modest profitability
- Startups often require multiple rounds of financing, so it’s best to think about selling part of the company at each step in the process, and what that looks like in terms of dilution
- Some investors…
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