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first raise (angel)

I've seen quite a bit of discussion around raising money. I'd like to share
my first experience with this, and then get feedback about 1) how to
speculate on costs, 2) how to target a raise number, and 3) determine what
stage is appropriate for raising (beyond *"as late as possible"*).

My first experience raising was a project I worked on after hours with
another engineer and a sales guy doing an app a lot like Belly, but prior
to Belly coming out. I'm in Austin, but needed to be in SF for work, and
decidedly to jump into a pitch competition after some social finagling with
the people running the event. I was the third out of three presentations
(my cofounders back in Austin), and in ten minutes I convinced the guy who
owned the building (a massive tech workspace with some 200+ companies) to
invest $150k on a $250k raise. I flew back out there, but we never closed.
And, the team ultimately fell apart (the other two founders had
*serious*relationship issues), and we all stayed at our day jobs.

Fast forward to today: I now am working full time on a social marketplace
startup, but this time not so focused on LoMo. I had dinner last week and
recruited a frontend engineer and a backend engineer on board (the equity
question is still up in the air). Now that I'm working at this full time,
I'd like to be able to pay my bills in a healthy manner, and I believe
we're 4-6 weeks away from having something online with a very small handful
of merchants. I'd like to increase the execution rate by pulling this front
end engineer on full time, but I don't the out of pocket cash to do so. I
do have a couple small time investor meeting coming up. So:

1) How do I speculate the burn rate (I can speculate server costs, customer
acquisition costs, and payroll, but these numbers get me no where close to
$1M). My previous $250k ask was completely off the cuff, seen as an
underask (at least I felt by the buyer's remorse), and pretty far from what
I feel most people ask these days for seed. We're a pretty healthy team
(both engineers, I have experience working at TechStars, we both went to
great schools, great breadth of experiences...)

2) This burn rate leads to the size that I ask... My guy tells me I should
fudge the numbers so that I sell a 9 month runway, but in reality spend for
a 12 month runway. Thoughts here?

3) We have a mostly functioning prototype, but I'd like to accelerate to a
deployed beta where I can actually sell to merchants. I've done customer
interviews, and there is a healthy number of merchants who are open to my
need (~700 in Austin). I don't think they're all guaranteed sells by any
means, but I feel that I'm currently running on financial fumes. Is now an
appropriate time to raise, or must I really wait until I have cash flow
positivity? I've gotten very close to the dance, but never been. I don't
have a mentor, and I think this is a huge problem, but that's the void this
group is currently filling.

Thanks a ton guys for hearing me out!

--
Devin Fee

1 Reply

Parul Singh
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Parul Singh Entrepreneur • Advisor
Seed Stage Investor at Founder Collective
Devin, I'm in a similar position -- determining when and how much to raise, and am curious what you ended up doing. Best of luck -

Parul
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