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Welcome to Billion Dollar Startup, where we bring you visionaries and disruptors who have started scaled, sold, or invested in a billion dollar startup, also known as a unicorn. We also feature tech founders who are building the next billion dollar startup. Billion dollar startup is a unique podcast sponsored by Dragon X Capital, the venture capital firm that concentrates on seed and early stage tech companies with the X factor.

Dan Lok (00:28):

Hey, I heard one of the most common questions that we get is like, for founders, how much money should they raised from abc?

Ivan Nikkhoo (00:36):

And that’s one of the most important questions because it impacts the number of things. Yes. So again, it depends on the stage, uh, their, uh, traction, uh, and sometimes the geography as well because of the cost related to the geography. So number one, if you raise too little, um, you’re gonna end up with a shortfall before your next round, and that’s gonna be a problem. Mm-hmm. <affirmative>, if you raise too much, you’ll be too diluted. And often times when companies raise too much, they tend to get into trouble.

Dan Lok (01:11):

It’s almost like cooking too much salt, too little, too little salt, it’s no good.

Ivan Nikkhoo (01:14):

So you want to find that, uh, goldy lock the correct amount. Okay. The best way to think about it is in 18 month cycles. Okay. Uh, like we have a company we are looking at right now, and I had a chat with him and he’s only doing about a million arr mm-hmm. And he wants to raise $5 million. And I said, why?

Dan Lok (01:31):

And AR means, uh,

Ivan Nikkhoo (01:32):

Annual recurring revenue. Revenue, which is the measure that we use with enterprise software companies to figure out where they are. It’s essentially their Mr. R, which is their monthly recurring revenue time. 12. 1212. Yep. So, um, the question is, what’s the appropriate amount? So the, the way I explain it is, number one, what is your monthly burn? Burn equals to total expenses minus total revenues for that month. Mm-hmm. <affirmative>, so monthly expenses, minus monthly revenues. So, and some people call it net burn. Yeah. In other words, how much is cash out the door? Yeah. So let’s say you’re burning a hundred a month. Yeah. So if, uh, and the, the second thing is you need to think about capital raising in 18 month cycles. Yeah. So the question I ask is, how much is your burn and what are your goals and objectives?

Dan Lok (02:20):

So let’s say the burn is a hundred K,

Ivan Nikkhoo (02:22):

So your burn is a hundred thousand

Dan Lok (02:23):

Dollars. So 18 months is

Ivan Nikkhoo (02:24):

1 million million. So my, then I will say, what are your goals and objectives over the next 18 months? Where do you need to be? Mm-hmm. <affirmative> and considering that burn might actually increase

Dan Lok (02:35):

Because they might hire people, engineers, and

Ivan Nikkhoo (02:37):

Everything else. So how much capital in total do you need to get there? Yeah. So it’s not saying we want to raise $5 million and this is how we’re gonna spend it. You have to work backwards and say, this is where we want to be. Mm-hmm. <affirmative>, and this is how

Dan Lok (02:49):

Much money, this is how much resource we need to get the resource need from here to there to

Ivan Nikkhoo (02:53):

Get there. Correct. There’s usually parameters around you as well. So there’s markets around you’re pree and seed and series A and so forth. There’s bands around, like a seed stage these days could be two to four, $5 million, and a round could be five to $15 million and so on. And so there’s, there’s bands around. Yeah. But with reasonability you can look at it that way. Again, where do we want to be in 18 months? How much resources do we need to get there? And sometimes you might need to adjust your burn to get there. Mm-hmm. <affirmative>. So, uh, the way, the reason it’s an 18 month cycle is because you show traction over a 12 month period and that gives you six months for the process of raising the next round. Yeah. If you begin raising up the next round with less than six months of runway left and runway is the number of months of cash you have

Dan Lok (03:44):

Left, you left, yes.

Ivan Nikkhoo (03:45):

It is gonna be a problem because many investors, including us, will not, uh, receive a company that has less than six months of runway. Yeah. Left because

Dan Lok (03:54):

It’s too, it’s too tight. It’s too tight. And also they basically, it tells us they kind of mismanage their money a little bit and also,

Ivan Nikkhoo (04:01):

Or they don’t know the game. They think it’s gonna be very quick to raise the money, and I hope they do. But for

Dan Lok (04:04):

Us, by the way, the worst time to make, to raise money is when you desperately need it. Yeah.

Ivan Nikkhoo (04:09):

Worst time if you show judgment and if you raise money in a very systematic manner mm-hmm. <affirmative>, the more experience we see is not only appreciated, but look at you more favorably knowing that the round after that yes, you would be using the same discipline and judgment. Yeah. Which is very, very important. Yeah. So again, what you wanna raise is the amount that is required in the, in the life cycle that you’re in for next 18 months. So from C two A is very different from A to B and then B and beyond based on your unit economics.

Dan Lok (04:40):

So that answers the question how much money you should raise for your next round. Until next time, happy, happy

Ivan Nikkhoo (04:46):

Unit on hunting.

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