Raise Sizing 101.

Quick question: In your next round how much are you raising and why that much?

There is a number I keep seeing in pre-seed decks, and if you are raising in the UK you can probably guess what it is. £250,000.

It makes sense. It is the current SEIS company limit, it sounds substantial without sounding wildly ambitious, and if you speak to enough founders or angels you hear it often enough for it to start feeling normal.

The problem is I am not sure most founders have actually calculated their raise size, instead assumed that’s what they should ask for because every other pre-seed is doing that too.

It’s dangerous. Raising the wrong amount can have serious impacts on future raises and the success of the startup, so I want to quickly walk you through how I go about sizing a raise.

The better place to start is with one question.

What needs to be true about this business before somebody will want to fund it again, at a materially higher price per share?

The only really defensible answer to “how much should we raise?” is enough to reach the next fundable version of the company, plus enough margin for things not to go exactly to plan.

I learnt a version of this much earlier than I would have liked.

When I was 20, I put around £10,000 of my savings into my first e-commerce business. I designed the product, organised manufacturing, worked on the branding, built the website and launched it.

Crickets.

I had effectively given myself around six months of runway, although I had not really thought about it in those terms. Suddenly those six months had a very different meaning. I was trying to work out what had to change before the money disappeared.

Runway is only useful when you know where the runway is meant to get you.

This is why I get slightly twitchy when founders tell me they are raising £250k because “it gives us 18 months”.

Eighteen months to do what?

At pre-seed, you are usually trying to remove enough uncertainty for a seed investor to believe the thing works and somebody will pay for it.

Maybe that means a live product and five paying customers. Maybe it means twenty design partners, £5k to £20k MRR with useful retention data, or a technical de-risking event.

For a marketplace, the important proof point might be liquidity and repeat usage. For deep tech or biotech, a prototype, regulatory milestone or commercial pilot could matter much more than revenue.

At seed, the same logic applies. A conventional SaaS company might be trying to reach roughly £1m to £2m ARR with credible growth efficiency before Series A, while another company could reach the same stage through a completely different non-revenue milestone.

Treat those numbers as heuristics, not rules.

The real question is what the next investor needs to see before they will value the company materially higher than investors do today.

If you cannot articulate the milestone, you cannot really size the round yet. You are still picking a number which sounds fundable.

Once you know the milestone, work out what reaching it actually costs.

Start with what has to happen between the company you have today and the company you just described.

Who genuinely needs to be hired, when do they need to start and what will they realistically cost?

Founder salaries belong in here too. A funding plan which only works because two founders are living on an unsustainable salary is not really fully funded.

Then add contractors, cloud costs, tooling, customer acquisition, legal and accounting, insurance, regulatory work, certification and any other material costs.

Sequence them properly. If an engineer starts in month two and the salesperson is only useful from month seven, the model should reflect it.

Then think about cash rather than accounting profit.

What happens if a customer pays 60 days later than expected? What happens if a certification costs £20,000 rather than £12,000?

Your first calculation is roughly

Core cash need = cash burn to milestone + one-off costs - existing cash

Then add contingency.

I would usually test something around 15 to 25 per cent depending on how predictable the plan is. Deep tech, hardware and regulated businesses generally need more room than lean software companies.

I would also try fairly hard to break the spreadsheet.

Revenue arrives three months later. The hire costs more. A product milestone slips by a quarter. One expected pilot disappears.

You do not need an apocalyptic downside case. I just want to know whether one fairly normal piece of startup chaos makes the plan collapse.

Only after doing the bottom-up calculation would I convert the answer back into months.

For most companies, I would want to see whether the resulting raise gives something in the region of 18 to 24 months from the money landing.

The reason is arithmetic rather than ambition.

You might need 12 to 15 months to hit the next meaningful milestone, then another four to six months to raise the next round.

A 12-month raise can look conservative when the money lands, then leave you fundraising from a weak position by month seven or eight.

Imagine your plan says you hit the milestone in month 12 and run out of cash in month 13.

On paper, you funded the milestone.

In practice, you have given yourself about four weeks to convince somebody else to fund the company.

So the calculation becomes

Target cash need = core cash need + financing buffer + contingency

If your burn is £18,000 a month, you have £30,000 in the bank, need £35,000 of one-off spend, expect the milestone to take ten months and want four months of financing buffer plus 15 per cent contingency, the number comes out at roughly £300,000.

Suddenly £250,000 is not the sensible middle-ground raise.

It is £50,000 short.

SEIS is not a target

SEIS currently allows a qualifying company to raise up to £250,000, subject to the other conditions, including the £350,000 gross-assets test.

It is a scheme limit, not a fundraising target.

If the company needs £190,000, I would not stretch it to £250,000 simply because you can.

If it needs £320,000, I would not pretend £250,000 is enough because it fits neatly into SEIS.

The practical sequence I use to size a round

One final test

Could you explain the milestone the money buys?

Could you explain how you calculated the cash needed to reach it?

Could you explain what happens if the plan takes three months longer?

Could you explain the dilution?

Could you explain why the number makes sense for the investors you are actually targeting?

If you can, £250,000 might genuinely be the right answer.

I just want it to be the answer you arrived at, rather than the answer you started with.

If you are preparing a raise and have the slightly horrible feeling your number is mostly based on what other founders seem to be asking for, this is exactly the sort of thing I work through one to one with founders. Be sure to reach out if you would like some help.

If you know a founder about to walk into an investor meeting too early, forward this on or send them here: https://lucycolson.beehiiv.com

Lucy x

Until next week,
Lucy

p.s if this was valuable for you, please share it with others you think could benefit by sending them here: lucycolson.beehiiv.com