FLOSS Foundations

March 02, 2015

Dries Buytaert

How much money to raise for your startup? [Flowchart]

From time to time, people ask me how much money to raise for their startup. I've heard other people answer that question from "never raise money" to "as little as you need" to "as much as you can".

The reason the answers vary so much is because what is best for the entrepreneur is seemingly at odds with what is best for the business. For the entrepreneur, the answer can be as little as necessary to avoid dilution or giving up control. For the business, more money can increase its chances of success. I feel the right answer is somewhere in the middle -- focus on raising enough money, so the company can succeed, but make sure you still feel good about how much control or ownership you have.

But even "somewhere in the middle" is a big spectrum. What makes this so difficult is that it is all relative to your personal risk profile, the quality of the investors you're attracting, the market conditions, the size of the opportunity, and more. There are a lot of parameters to balance.

I created the flowchart below (full-size image) to help you answer the question. This flowchart is only a framework -- it can't take into account all decision-making parameters. The larger the opportunity and the better the investors, they more I'd be willing to give up. It's better to have a small part of something big, than to have a big part of something small.

How much money to raise for your startup

Some extra details about the flowchart:

  • In general, it is good to have 18 months of runway. It gives you enough time to figure out how to get your company to the next level, but still keeps the pressure on.
  • Add 6 months of buffer to handle unexpected bumps or budgeting oversights.
  • If more money is available, I'd take it as long you don't give away too much of your company. As a starting point for how much control to give up, I use the following formula: 30% - (5% x number of the round). So if you are raising your series A (round 1), don't give away more than 25% (30 - (5 x 1)). If you are raising your series B (round 2), don't give away more than 20% (30 - (5 x 2)). If you start with 50% of the shares, using this formula, you'll still have roughly 20% of the company after 5 rounds (depending on other dilutive events such as option pool increases).

My view is that of an entrepreneur having raised over $120 million for one startup. If you're interested in an investor's view that has funded many startups, check out Michael Skok's post. Michael Skok is Acquia's lead investor and one of Acquia's Board of Directors. We both tried to answer the question from our own unique viewpoint.

by Dries at March 02, 2015 01:52 PM

February 28, 2015

Louis Suárez-Pots

lupo

My colleague, Peter Kelly, pointed us to this article (actually, a reference to this one). It’s rather interesting and, like Peter, I’m interested to see what develops—and see this as, so far, a positive change.

Back at CollabNet, when we had to draft webpages for sites, we’d have to put in the exceptions for Netscape 4 (Sun had standardised on it, as had so many) and IE. Tedium. But also more than that. Recall that South Korea’s ecommerce infrastructure, as well as much of its public government, has standardised on increasingly obsolete—embarrassingly, dangerously obsolete—IE. And by dint of contract and law (and oligarchy, I suppose, as well as momentum: boredom) is stuck with the kind of past only a grave robber would love.

 

Inside Microsoft’s New Rendering Engine For The “Project Spartan” – Smashing Magazine.


Filed under: critique

by oulipax at February 28, 2015 01:05 AM

February 25, 2015

Louis Suárez-Pots

lupo

Okay, 80 pages in and I am officially Giving Up on MS Office 2011 for OSX. Switching to LibreOffice with relief, b/c it works better.

LibreOffice=OpenOffice plus/minus minor things.

The point: it’s easier to use.

And regarding change tracking: Charlie: contact me. We have some ideas on this score. You’ll like them (especially if you give us suggestions).

‘Utterly unusable’ MS Word dumped by SciFi author Charles Stross • The Register.

 

 


Filed under: critique

by oulipax at February 25, 2015 11:38 PM

February 24, 2015

Dries Buytaert

5 things a government can do to grow its startup ecosystem

Building a successful company is really hard. It is hard no matter where you are in the world, but the difficulty is magnified in Europe, where people are divided by geography, regulation, language and cultural prejudice. If governments can provide European startups a competitive advantage, that could come a long way in helping to offset some of the disadvantages. In this post, I'm sharing some rough ideas for what governments could do to encourage a thriving startups ecosystem. It's my contribution to the Belgian startup manifesto (#bestartupmanifesto).

  1. Governments shouldn't obsess too much about making it easier to incorporate a company; while it is certainly nice when governments cut red tape, great entrepreneurs aren't going to be held back by some extra paperwork. Getting a company off the ground is by no means the most difficult part of the journey.
  2. Governments shouldn't decide what companies deserve funding or don't deserve funding. They will never be the best investors. Governments should play towards their strength, which is creating leverage for all instead for just a few.
  3. Governments can do quite a bit to extend a startup's runway (to compensate for the lack of funding available in Belgium). Relatively simple tax benefits result in less need for venture capital:
    • No corporate income taxes on your company for the first 3 years or until 1 million EUR in annual revenue.
    • No employee income tax or social security contributions for the first 3 years or until you hit 10 employees. Make hiring talent as cheap as possible; two employees for the price of one. (The cost of hiring an employee would effectively be the net income for the employee. The employee would still get a regular salary and social benefits.)
    • Loosen regulations on hiring and firing employees. Three months notice periods shackle the growth of startups. Governments can provide more flexibility for startups to hire and fire fast; two week notice periods for both incoming and outgoing employees. Employees who join a startup are comfortable with this level of job insecurity.
  4. Create "innovation hubs" that make neighborhoods more attractive to early-stage technology companies. Concentrate as many technology startups as possible in fun neighborhoods. Provide rent subsidies, free wifi and make sure there are great coffee shops.
  5. Build a culture of entrepreneurship. The biggest thing holding back a thriving startup community is not regulation, language, or geography, but a cultural prejudice against both failure and success. Governments can play a critical role in shaping the country's culture and creating an entrepreneurial environment where both failures and successes are celebrated, and where people are encouraged to better oneself economically through hard work and risk taking. In the end, entrepreneurship is a state of mind.

by Dries at February 24, 2015 07:15 PM