Well, first, let’s be clear — it’s tough for your “goal” to be a merger or acquisition in most cases. There really aren’t that many good acquisitions done a year — maybe 100 in internet, maybe less. So if that’s really your goal — vs. building an Amazing Company — I’m worried you’ll fail.
Having said that, let’s rework the question. The best way to maximize the odds a decent ROI acquisition is technically feasible is to (x) raise the least amount of capital necessary to still (y) build a category winner, or at least, a potential category winner.
In acquisitions, usually, the acquirer wants to buy either the category winner (which get a huge premium), or at least, a potential category winner (might be #2 today, but could be #1, it’s growing faster, better tech, etc.). The #3 player in the space usually gets bought for peanuts.
However … most acquirers, Google and Facebook aside, will have structural and cost constraints. Billion dollar acquisitions are very rare, and only a handful of companies have the market cap to pull them off. But $50m acquisitions are fairly common and structurally easy for any company worth >= $1 billion itself. Very few acquisitions happen that are > 5% of an acquirer’s market cap, or value. Only if they are truly “must haves”.
And … most investors are only going to be happy if they make at least 3-5x on a deal. 2x, worst case. So if you raise money at a $40m valuation … then selling for $50m becomes structurally hard on the start-up side.
>> Or put differently, the economics with your investors get challenging if, as a rule, you sell for less than 8-10x the amount of capital you’ve raised. << More on that here: SaaStr | The 10x Rule: What Raising $1 of Venture Capital Really Means
So, if you aren’t really going for it … at least not yet … not really trying to build your own unicorn.
Then, raise enough to build a strong enough team and product to be perceived as a pre-winner. But don’t raise so much that your valuation precludes an acquisition at a tolerable price for certain acquirers.
That’s a pretty nuanced play. But. It has worked time and time again.
A $1.5b market cap company will go shopping for $50m tuck-in acquisitions. And they’ll simply rule out anyone that’s raised too much more than $5m in funding, unless it’s a fire-sale situation.