How Much VC investment should I raise?

Louise Chapman

Read • 7 min

Pre-Seed
Seed
Series A

Raising capital can be a critical milestone for many businesses who may be looking for rapid growth, market expansion, or product innovation.

However, one of the most difficult decisions founders must make during this process is determining how much funding to raise.

This decision can impact the business’s financial stability, valuation, control over decision-making, stakeholder relationships and, ultimately, its long-term success. While there’s no one-size-fits-all formula for determining the ideal amount of investment, various factors can be used as a guide.

So, what are...🔗

The key considerations in deciding how much capital to raise?
The typical stages of venture capital funding?
The impacts of raising the right (or wrong) amount of money?

Key Factors to Consider When Deciding How Much to Raise

Business Needs and Milestones

The primary factor in determining how much capital to raise is understanding the business’s current needs and future goals. At each stage of development, a startup requires different amounts of funding depending on the objectives it wants to achieve. Here are some questions to ask during this evaluation:

What stage is your business at?

Early-stage startups may require less funding, as they focus on product development, market validation, and building a customer base. Later-stage businesses, on the other hand, could require more capital to scale operations, expand to new markets, or further develop product offerings.

What are your key milestones?

Raising enough capital to reach the next critical milestones (e.g., customer acquisition, technology development, profitability) is crucial. Without a clear understanding of what each milestone costs, you risk either overestimating or underestimating your financial needs.

What is your runway?

Runway refers to how long the company can operate before it runs out of cash. A general rule of thumb is to raise enough funds to last between 12 to 24 months. This timeframe allows businesses to achieve key milestones, while also ensuring they don’t find themselves scrambling to raise capital too soon.

Market Conditions and Industry Trends🔗

Broader economic and market conditions also play a significant role in determining the amount of venture capital a business should seek. In a strong economy, investors may be more willing to back large funding rounds, while in an uncertain market, they may prefer smaller, more conservative investments.

Industry trends also impact the funding amount, as startups in high-growth sectors (e.g. AI or biotech) may be able to secure larger investments compared to those in more niche or slower-growing markets. Additionally, startups in industries with high customer acquisition costs may need more capital upfront to secure a traction in the market.

Valuation and Equity Considerations

A startup’s valuation is closely tied to how much money it can raise. The amount of funding a business raises in each round will influence the amount of equity it gives up. For instance, a business that raises £5 million at a £20 million valuation will give up 25% equity to investors.
Entrepreneurs must balance the amount of capital needed with the equity they are willing to part with.
Giving away too much equity too early can limit the founder’s control and reduce the upside for future rounds. It can also make future funders wary that the founder doesn’t have enough “skin in the game” and may not be incentivised appropriately.
On the other hand, raising too little capital at a low valuation may mean that a company struggles to meet its targets, leading to additional rounds that could further dilute the founder’s ownership.
An issue we often see is that businesses haven’t “caught up” to their valuation. For example, a business that raises £3m at a £5m valuation is then valued at £8m after the investment. If the business hasn’t progressed enough (e.g. acquired enough customers, hit its product development goals) by the time it needs to raise more money then it may have raise money in a “down round” – i.e., in this example, below £8m. This means all existing shareholders will be over diluted and it is also possible you will have to accept more harsh investor terms too in order to raise funding.

Typical Stages of Venture Capital Funding🔗

The amount a business raises is often determined by the stage of its development. Below is a closer look at typical funding stages and the investment amounts commonly seen at each level – however, this is a guide and there are always factors which can impact this:

1) Pre-Seed Stage🔗

This is the very early stage of a startup, where the business is typically in the ideation phase and has little to no revenue. Funding needs at this stage are often relatively low, often ranging from £100,000 up to £1 million. Pre-seed funds are often used for market research, product development, and business planning.
Investors at this stage are usually angel investors, friends and family, or early-stage venture capital firms.
There could be other sources of funds too, such as grants.

2) Seed Stage🔗

At the seed stage, businesses have typically built a prototype or initial version of their product and are working on customer validation. They may have small revenue, but the primary goal is to demonstrate product-market fit.

Funding range

Funding raised at this stage typically ranges from £500,000 to £2 million. The funds are used to refine the product, attract early users, and build a core team. Investors at this stage often include seed-focused VC firms, angel investors, and accelerators.

Some sectors at this stage may require larger funding rounds – for example, deep tech or life sciences. This is because it may take longer/be more costly to hit these milestones. On the flip side, the returns could be massive for an investor when they do.

3) Series A🔗

By the time a business reaches Series A, it usually has a proven business model, traction in the market, and a growing customer base. Funding at this stage is aimed at scaling operations, expanding the team, and improving the product.
Investment amounts typically range from £1 million to £10 million, although this can vary greatly depending on the market and investor appetite. Series A investors are usually traditional venture capital firms that focus on growth-stage companies.

4) Series B and Beyond🔗

At Series B and later rounds, companies have typically achieved significant growth and are looking to scale further. Funding is used to expand into new markets, develop new products, or prepare for acquisition or an initial public offering (IPO).

Series B Investment Range

Investment at this stage can range from £10 million to £50 million, with later rounds seeing even larger investments. These rounds typically involve larger venture capital firms and private equity firms looking for companies with high potential for substantial returns.

Investor Expectations and Funding Type🔗

Linked to the above, different types of investors and funding rounds come with varying expectations for investment amounts.
Each funding round also has specific objectives tied to it. For example, a seed round is more focused on proving the concept, while a Series A or B round is focused on scaling and market expansion.
However, you should also be aware of each funder’s mandates and preferences. For example, some may be more sector or geography specific and less concerned with which round you are at.

Pro Tip

A good tip is to look at who they have funded in the past and also build a relationship with them early. It can be hard to raise money from a complete cold approach

Forecasts and Financial Strategy🔗

When deciding how much investment to raise, a business will almost definitely need to have solid financial forecasts in place. This includes realistic cash flow projections that outline expected revenue, expenses, and profits/loss over the next 12 to 18 months. A strong financial strategy demonstrates to potential investors that the business understands its financial needs and can effectively manage its funds.
The complexity of these may be different at different rounds and no one is expecting all founders to be FDs. However, you must know your key numbers and metrics – for example, what does good look like? What are the key KPIs and milestones for your business? What is your cash runway? What levers can you pull if things don’t go to plan?
Further, while forecasts are important, they should also be flexible enough to account for uncertainties. Overestimating revenue or underestimating costs can lead to funding gaps and missed milestones, while underestimating the amount needed for scaling can lead to the business running out of cash prematurely.

NOTE

Investors understand that things change and rarely does a business exactly hit its forecast; however, you should have solid assumptions behind them which you can back up with clear thinking and/or evidence. Without this, you could lose credibility with investors and ultimately struggle to raise the capital you require at the price you want.

Competition and Market Differentiation🔗

In competitive industries, businesses may need to raise more capital to stand out and gain traction in the marketplace. A larger capital injection can help a business accelerate product development, marketing efforts, and customer acquisition, giving it an edge over competitors.
However, investors will often ask how the company plans to differentiate itself from competitors. If the differentiation strategy requires significant investment, this will influence the amount of funding a business needs to raise.

The Impact of Raising the Right Amount of Capital

Deciding how much capital to raise is one of the most important decisions an entrepreneur will make when seeking venture capital. Ultimately, the goal is to raise enough money to achieve key milestones, scale effectively, and set the business up for long-term success while maintaining a balance between dilution and growth potential.

By considering these factors, understanding your own metrics and milestones, and aligning with investor expectations, it’s possible that businesses can raise the right amount of capital to accelerate their growth without compromising the long-term value of their business.