Let’s answer this question.
Now, before answering, the assumption is that you have started a company or you want to start a company that is fundable and that you want to fund it. Not every company can raise investor money—there’s going to be a separate question for that. But assuming that you know you want to raise money, then the question is: how much should you raise for your startup?
Different people answer this question differently. There are a number of mental models for it. I’ll tell you what I’ve heard, and I’ll also share what my favorite is.
Now, my favorite way of deciding how much money to raise is by really thinking of money as time. Running a startup has some cost—it has a monthly burn rate. That is, the amount of money you spend per month to make sure the company can exist, whether that’s salaries for early team members, software costs, server costs, etc. Different businesses have different cost structures.
Now, co-founders or a solo founder—if you’re a solo founder—may also have different compensation needs. Some people are like, “Hey, I have some savings. I don’t need to draw any money from the business until a certain point, maybe until we have some degree of funding or some degree of revenue.” Some people don’t have savings—maybe they’re going all in, and they need to draw some money from the business, even starting from the first month. These are all things that people have done.
I mean, the ethics around these are pretty clear at this point, and these are all valid approaches. But regardless, your startup is going to have some cost monthly. If it turns out that the cost of your startup is, say, $5,000 a month, or $2,000 a month, or $10,000 a month, then the question of how much money you should raise is technically: how much time do you need? And how much time are you willing to dedicate to building this company?
How long is your commitment to entrepreneurship?
Now, some founders are, I guess, growth-hacking, opportunistic founders in a sense. I mean, every founder is opportunistic, but some people are hyper-opportunistic—in a good way, not in a bad way. They look up Google search keywords, try to find some crazy keyword that most people have missed, or try to find some trend on Reddit. Maybe they have some specific insight to the point that they conclude there’s a specific app or business that, if they build it, they can grow massively within three to six months, or maybe 12 months. They think they can make millions of dollars within that timeframe.
If a founder like that wants to raise money for some reason, they should probably raise just enough for three to six months to validate their idea.
Some founders aren’t like that. Some founders are married to a problem statement. They’re not just going around trying to find what’s hot right now that could create a great business. And these two approaches—I don’t want to say one is good or bad—I feel like they’re just very different. Some people are in business for money. Some people are in business for money and meaning.
If you’re in business for money and meaning, and you’re married to a problem space—such as healthcare, transportation, or energy—if you’re trying to build a nuclear energy company, imagine that. Imagine if you want to build the world’s next education system. Imagine if you want to change the world’s culture by building a tech company that curates a whole different type of content than what people consume on their phones.
That is not going to be a three- to six-month experimental experience. That’s going to be at least two to four years of iteration before you even find your starting point, because these are gigantic problems that need to be broken down into smaller problems.
Sam Altman calls these a “detour”—it’s not a pivot, it’s a detour. If you want to build a nuclear plant, you may not be able to get the resources to do that right away. You may need to start by building a small nuclear battery, working with some existing facility, getting all the regulations in place, and innovating on some level in order to sell something or raise money to do the big deal.
The same thing applies to these big problem spaces that require long-term commitment—like AGI, for example.
So yeah, if you’re going for that sort of thing, you’d better raise money for at least two to four years—for yourself and a team. Assuming there’s going to be a full-time team of people, including you, who are hopefully the best in the world for that problem, you’ll need to spend years trying to crack it. You’ll keep building products with the goal of getting to product-market fit, knowing that it may take many shots, many iterations, to get there.
Most startup content doesn’t talk about this because most startup content is written by accelerators that want to discourage people from building hard, long-term companies. Accelerators and VCs have much shorter timelines—accelerators want you to 10x your valuation in three months. But if you want to change the world in one of these big ways, you need a lot more than three months to create a huge valuation.
Although that is changing now, because recently, YC has been admitting a lot of hard-tech companies. So maybe they can change some of these timelines and some of the expectations around financing these companies.
But yeah, to summarize:
You should raise money proportional to the amount of time you want to buy for yourself and your startup.
And for you to know how much time you need, it depends—what is your commitment to entrepreneurship? Are you going to spend three months trying and, if nothing works, walk away, get a job, or just chill?
Or no—are you going to keep trying until you make it work?
There are entrepreneurs out there who enter a problem space knowing that they can solve it if they just brute force their way through. People like Elon Musk—people like that shouldn’t raise money for three months; they should raise money for the entire brute-forcing experience.
Some people might say, “You’re not Elon Musk.” That’s nonsense. You could very well be the next Elon Musk.
So if you pick a really difficult problem space that requires a lot of brute forcing—a lot of smart people brute forcing for a long time—raise enough money for you to be able to spend enough time with that smart team doing exactly that.
This wisdom is brought to you by LearningLoop.com, the world’s best online community for founders who don’t fit the mold of startup accelerators but are still super hardcore and ambitious.
