The framework for deciding round size: milestone-driven, runway-anchored, and dilution-bounded. Common founder mistakes and how to model it right.
Round size isn't about maximizing capital — it's about matching the smallest amount that reaches a milestone-worthy valuation for the next round. Oversized rounds create as many problems as undersized ones.
Start with the milestone the next round requires (Series A: ~$1M ARR, 3× YoY growth in most sectors). Model the spend required to reach it. Add 6 months of buffer. That's the raise.
18–24 months of runway is standard. Under 18 months forces you back into fundraising too soon. Over 30 months means you took too much dilution or aren't executing fast enough — both are problems.
20% dilution is the target for a standard priced round. 25% is acceptable in tight markets. 30%+ is too much and constrains future rounds. If the milestone requires more capital than 20% dilution allows, raise less and cut scope.
Raising 2× what you need doesn't buy 2× runway — it forces spending expansion (hiring, marketing, geography) that often doesn't produce proportional revenue. Then you face the next round at a valuation that requires the higher spend to justify.
Raising less than you need means you're back fundraising in 12 months instead of 18. Fundraising takes 3–6 months of founder attention. Undersizing costs more in lost focus than the dilution saved.
Build the model with conservative revenue and realistic burn. Test with a sensitivity — what happens if revenue is 50% of plan? If that scenario doesn't leave 12 months of runway, the round is too small.
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