Raising the right amount of capital is critical for startups at any stage: whether at the pre-seed or seed stage, or for later-stage priced rounds (typically Series B and onwards).
Raising too much funding likely means that you gave away too much equity in your business, or permanently ruined your chances of a successful exit. On the other hand, raising too little funding can spell disaster for early-stage startups, which may struggle to secure bridge financing to extend their runway.
What’s the right amount of funding to raise for my startup?
“Right-sizing” your fundraise is one of the most challenging questions for founders, and there’s no universal answer. The “right” amount depends on your business model, growth stage, market conditions, and specific milestones you need to hit.
Tips:
- Give yourself breathing room
- Make sure to factor in legal cost (typically $20k for a standard seed round)
- Add 20-30% buffer on top of your projections because everything always takes longer and costs more than expected
- Don’t raise based on best-case scenarios – use realistic assumptions about customer acquisition and revenue ramp
Risks of raising too little funding
Bridge funding is almost always at worse terms than the inital round; in the very best case scenario (super rare), you’ll get the same terms as your most recent previous round, which means bridge investors get all the upside of the traction you’ve achieved since then at no markup (something your existing investors won’t be very happy about). Furthermore, downrounds make subsequent raises even tougher as they raise an immediate red flag for VCs about the health of the business.
Fundraising is time consuming, and the typical roadshow takes several months. Raising too little can be a slippery slope into a vicious cycle of spending time away from the business to raise downrounds, which then hampers the growth and/or revenue, which lead to more downrounds.
Risks of raising too much funding
On the other hand, first-time founders often fall into the trap of thinking raising more money equals success, but in the reality it can be the opposite. In the golden “ZIRP” era of VC hubris, raising large seed rounds became increasingly common.
Retention.com CEO Adam Robinson shared an all-too-common story of how this pans out on X.com (formerly Twitter) in 2025:
A friend who raised over $100M for his startup (which peaked at a $1.2B unicorn valuation in 2021) reportedly lamented to him, “We’re completely stuck. IPO is off the table, I don’t know how we could ever get back to $1.2b valuation let alone a 3x from there. Nobody ever told me this was a possibility.”
Many startups that raised too much funding when valuations were soaring sky-high have found themselves unable to exit or raise subsequent funding, and end up being forced into fire sales that wipe out common stock (meaning founders and employees receive no return).
Of course, a higher valuation plays in the favor of founders from an equity dilution standpoint, but it is a double-edged sword. Raising too much funding or at too high of a valuation might doom your startup by setting unattainable growth expectations.
Hit HBO series “Silicon Valley” includes a perfect example of this exact scenario in the “Sand Hill Shuffle” episode:
tl;dr: Richard (CEO of the fictional startup, Pied Piper) speaks to his friend Javeed, whose company Googlibib was valued at $200 million but got forced into an acquisition because he over-raised. Having heard this cautionary tale, Richard negotiates down his investor’s $20M offer to a $10M round at half the valuation.
Although it sounds like a good problem to have, a “runaway valuation” ties a high-growth startup a crazy value that it can never be able to live up to, leading to an inevitable downround. Ideally, you want to start with a realistic valuation and grow at a reasonable pace (paraphrasing from this same episode).
How to calculate what you need
There are a few different ways you can calculate the right amount to raise for your startup, and often a combination works best:
Burn rate calculation
The simplest (and often safest) method of calculating the ideal round size is to simply multiple your estimated burn rate by 18-24 months (or however long it will take you to get to the target for your next round). This ensures you have sufficient runway to hit meaningful milestones as well as raising your next round (which will take 3-6 months minimum).
It’s important to derive this based on your future expected burn, not your current burn — your company will almost certainly need to increase headcount and spend across departments to hit your new targets.
For example, if your startup expects to burn $50k per month, you’d want to raise $900k – $1.2M. Oversubscribed rounds are a good way to create FOMO and urgency with VCs, so you might set the original ask lower.
Runway calculation
Some startups (ie. those with pre-revenue pilots or LOIs from enterprise customers) have a clear path to revenue or the next round of financing, and just need enough money to make it to that point. For instance, medtech startups might raise funding for runway to complete pilots with health systems, or a food & beverage startup might raise funding to support inventory and fulfillment for distribution with new big box retailers.
These companies can simply work backwards from this target (either in terms of runway or expected cost) and add 6 months of buffer time. If a signed pilot that converts to a $100k annual contract in 8 months, plan for 14 months of runway to account for delays and give yourself time to raise based on that new revenue and customer validation.
Milestone-based approach
The most generally-applicable approach to sizing your startup’s ask is to raise just enough to hit the next major value inflection point needed for your next round (funding which you’ll receive on more favorable terms). This inflection point varies greatly by fundraising stage and industry, and taking this approach requires honest assessment of what metrics investors in your space care about. For example, a pre-revenue consumer mobile app startup may focus on proving user acquisition and retention metrics vs. a Series A CPG startup would focus on sales growth, unit economics, and scalability.
Bottom line: when it comes to raising venture capital, never assume more is better: sometimes raising a tight round to hit specific milestones sets you up much better than raising a large round at a high valuation that creates unrealistic growth expectations.