Round size is a topic that always makes me chuckle when entrepreneurs share the feedback they hear on the fundraising trail. Every fund has refined the story that fits their fund, regardless of the business: larger fund = raise more money, smaller fund = raise less money.
I don’t think most VCs are being disingenuous, at least not consciously. They are sharing what has worked for them — remember, most of the industry is about pattern-matching what has succeeded in the past.
Larger funds share the virtues of taking more money up-front, accelerating quickly and keeping yourself off the fundraising treadmill. Smaller funds share the wisdom of taking only the money necessary to hit key milestones, while keeping dilution to a minimum until raising more against value-creating events. There is value in both perspectives, but keep these tendencies in mind — they have nothing to do with your business.
This blog post was sparked by an entrepreneur asking me today about the best round size for his business. Despite my fund’s focus on $1-5M rounds and my excitement about the business, my advice was to pursue a $10M+ early round. Why? Because the company has some significant early risk that can only be reduced by closing some major/difficult deals or securing a large warchest. Thus, closing $3-6M funding could actually be harder than closing $10-15M, begging the question about life/death, not dilution. Sounds weird, huh? Well, for this company a bigger round could make sense.
Make sure the answers you get make sense for your company, not just the fund across the table…