A founder told me this week he’s raising €2 million. I asked why two.
His best friend had raised €2 million at pre-seed. And, as he put it with a straightforwardness I did like, he’s smarter than his best friend. Therefore two was the floor.
I couldn’t fault the logic. I could fault pretty much everything else.
“How much are you raising, and why?” is a question I ask on almost every founder call.
If I had a nickel for every time a founder picked a number based on the market and less than on their fundamentals and needs, well, let’s just say I’d have a lot of nickels. Enough to buy myself a Mortadella pizza (yes, I was hungry and craving Italian when I wrote this).
Interestingly, the first half of that question almost always has an answer and the second half almost never does. I hear variations of the same thing all the time.
“We’re raising €1 million because that’s a normal pre-seed round.”
“We think we can get €2 million in this market.”
“Our competitors raised €3 million at this stage.”
Or my personal favourite: “We don’t want to give up too much equity, so we’re only raising €500K.”
Different answers but the same issue. The number came first, and then the company was made to fit around it.
The two opposite mistakes
I’ve seen this go wrong in both directions.
On one end is the founder who wants to prove how capital efficient he is. He raises the smallest amount he can, runs the company incredibly lean, and tells investors he’ll achieve twice as much with half the capital. Which sounds great in theory.
Until nine months later he’s fundraising again; now with three months of runway, milestones he promised and didn’t quite reach, and costs being cut to keep the lights on while he tries to convince the next investor everything is going brilliantly.
If €500K buys nine months and three of those have to go on the next raise, that’s six months of actual execution against a build that needed a year, minimum. So he trims, and the experiments that would have produced the evidence are the first things cut. They always are.
He then returns to the market before the underlying story has materially changed. Same stage, similar claims, nine months older.
He hasn’t just failed to become more fundable; he has made himself less fundable, because “we’ve been at this nine months and here’s what’s different” is now a question he has to answer and can’t. Capital efficiency was supposed to be the impressive part.
On the other end is the founder running a different argument entirely: more money is more ambition, more runway, more optionality. But the amount you raise is not a status symbol. It’s the price of reaching the next point at which the company is materially more valuable. And that’s before we get to the dilution elephant in the room, which everyone names and which is the least interesting cost of the three.
What a large round actually buys is a larger set of expectations. It’s a statement about what you’ve undertaken to prove, and everyone who wrote a cheque starts measuring you against it the day the money lands.
The problem isn’t that investors expect to see €3 million of “progress.” It’s that you’ve set a higher bar for what the company should look like when you next come back to market. And you set it before you know what you’ll actually be able to prove.
Hire the superstar engineering team, the full marketing department and the in-house pastry chef to go with the cannelloni (I really should snack before writing these). It all arrives eighteen months later as a flat round nobody wants to lead, because the milestones that justified the size of the raise never quite showed up.
HBO’s Silicon Valley captured this better and more hilariously than most fundraising advice ever has. Nobody sets out to raise too much; they take what’s offered, and the expectations turn up later. Hence the wonderfully tragic: “Nobody told me I could take less money.”
Raising too much money (Silicon Valley)
A funding round is a bridge and it has to reach the far bank. One that stops eighty percent of the way across isn’t eighty percent of a bridge. It’s a pier.
What the investor actually does with your number
Before they’ve done much else with it, they’ve started working backwards.
Your ask implies a burn, a team, a timeline and, most importantly, a destination. The investor is quietly checking whether those things belong together.
If you’re raising €2 million but the plan you’ve described sounds like it needs €800K, that’s a question.
If you’re raising €500K but the milestones you’ve promised require twice the team and twice the time that money can buy, that’s a question too.
Neither tells the investor that your number is necessarily wrong. It tells them you might not know whether it’s right.
That’s why I ask so early in a meeting. It isn’t really due diligence on the figure. It’s a cheap test of whether you’ve run the next eighteen months of your company in your head.
Three questions
As John F. Kennedy once famously said: “Ask not what this raise can do for you, ask what this raise needs to do for your company’s next round.” (Definitely a legit quote from the big guy)
Ignoring my butchering of the quote, the question is what this capital needs to make true about the company. Then you work backwards from there.
The three questions the raise amount has to address:
Where does this round need to get you?
Not “eighteen months of runway.” What is actually different about the company at the end of it? €500K in ARR. Ten pilots converted into paying customers. UAE launched with three enterprise logos signed. Product commercially live. If the answer is a duration rather than a state, you haven’t really answered it.
What does it realistically cost to get there?
Team, product, GTM, geography, regulatory, working capital, whatever the milestone actually requires. Built from the milestone backwards, not from a fashionable round size forwards. This is the only part of the exercise that’s arithmetic, and it’s the part most founders skip precisely because they think they already know the answer.
How much margin do you need?
Two separate costs live here, and merging them is how founders end up short. The first: the next raise can easily take five to six months from first meeting to money in the bank, and it starts before you hit the milestone, not after. That’s a known line item, not a contingency. The contingency sits on top of it, because things almost always take longer than the plan says they will. Some call it the beauty of life. I call it the cost of reality. If the plan needs fifteen months in the perfect case, funding exactly fifteen months isn’t capital efficiency. It’s a bet that nothing goes wrong.
The golden rule isn’t eighteen months, or twenty-four, or any particular number. It’s that this round should finance you to the next fundable inflection point, with enough margin that you aren’t forced back into the market before you’ve reached it.
Run the three questions and you’ll have a number.
Check it against dilution at a defensible valuation for your stage, and if it prices out past twenty-five percent, here’s the move almost nobody makes: don’t underfund the milestone. Bring the milestone closer.
Cutting €1.5M to €900K while still claiming the original plan is how founders end up in the first mistake.
The Rewrite
Two sentences from a founder’s email to an investor, answering what he was raising and what for. Anonymised, as always.
The original, as sent:
“We’re raising €2M in pre-seed to accelerate product development, build out our commercial team, and expand across the DACH markets. The round gives us 24 months of runway and positions us well for a Series A in 2028.”
The rebuild:
“We’re raising €1.2M. We have four unpaid pilots with large logistics operators; three have said they’d convert if we can show thirty consecutive days of unattended operation. That’s the gap. €1.2M funds three engineers and a deployment lead for twelve months to close it, plus six months to raise on the result. Three pilots converting at roughly €120K ACV gets us to €360K in contracted revenue from named enterprise logos. The next conversation is then about how quickly we can repeat it, not whether the technology works.”
What moved, and why.
The first version asks an investor to trust a plan. The second lets them audit one. Every important figure has something observable behind it: the pilots, the conversion condition, the ACV.
It also names what the next conversation should be about. That’s what the round is actually buying.
Not runway. Not headcount.
The right to have a better conversation eighteen months from now.
Clipped
Jeff Bezos on one-way and two-way doors
Bezos’s one-way vs. two-way door framework is usually used to explain why companies move too slowly: don’t overthink decisions you can easily reverse.
The interesting bit for fundraising is the opposite. A raise is much closer to a one-way door. You can’t un-dilute, you can’t un-set expectations, and nobody gives you the months back.
Yet founders often decide it at two-way-door speed.
One question
Would your number be the same if you’d never heard what anyone else in your market raised?
If you hesitated, that’s the finding.
Reply with the number anyway and one line on what it’s meant to buy. I’ll tell you what an investor is likely to reverse-engineer from it.