Dear SaaStr: Why Do VCs Always Want You To Raise 18 Months of Runway? Or Even More Now?

Dear SaaStr: Why Do VCs Always Want You To Raise 18 Months of Runway?  Or Even MoreNow?

The math is pretty straightforward, and it’s gotten a bit tougher recently.

VCs want a few things:

  • To invest some now, but see how it goes.  Not have to invest it all up front.
  • To later bring in new investors, at a higher price, to offload some risk and importantly to bring in larger checks.
  • But also, most are somewhat dilution sensitive.  They get diluted in the next round, along with everyone else.

So VCs don’t want you to sell a massive amount in the current or next round.  Selling half your company is just too much dilution.

But VCs want to you to raise enough to make enough progress so the next round can be at 2x-3x the last round price.

Usually, it takes at least a year to grow enough to earn an upround.  During the go-go times of 2021, sometimes you could get there in just a few months.  And in tougher times, it can take 24+ months to make enough progress to double or triple your valuation in the next round.

So 18-24 months is as long as it may take you to attract more capital at a higher price.  So that’s how much VCs generally want you to raise.

A related post here:

If Your Numbers Are Good — Now Might Be a Great Time to Raise a Little Extra Capital From Your Existing Investors

Published on May 20, 2022

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