You may not be able to, but there are some key factors to balance in getting as close as possible to the mythical “right amount of money”. The question at hand is of course the subject of many articles/posts and conversations that vacillate often between “only what is absolutely necessary” and “as much as possible.” At a high level, the factors to be balanced are the capital needs of the company and the total percentage of equity that is exchanged for that capital. At low enterprise valuations (pre-product, pre-customer, pre-sale, etc.), founders may seek to retain as much equity as possible and only raise the capital necessary (plus a little bit extra to cover the inefficiency of even the most prudent planning) to hit certain benchmarks that will provide for higher future valuations, which will allow less equity to be exchanged for larger amounts of capital in the future. Also in the crosshairs is the accuracy of your business plan and ability to determine the amount of capital necessary to reach your stated goals. Much is written about protecting founders in this manner, and it is a very important consideration, however, do not let a myopic focus on this principle guide you to putting too much stock in your business plan and estimated capital needs going forward and not to raising enough capital to achieve your planned benchmarks and remain nimble, particularly as your business may pivot, evolve and change over time.
The simple reality is that you likely need more money than you think you do. If only there were a simple answer as to “How much more?” There are numerous factors that play into this reality that will be different for each startup across different industries. Despite everyone’s best and most reasonable estimates, revenues don’t always grow in the manner planned for or expected. Manufacturing/engineering/design/coding as well as marketing/sales and go-to market almost always takes longer and is more expensive than anticipated. How many times do the engineers/designers/coders want to rework your product in a manner that will materially improve the product and eventually boost sales, however they need additional time and expense to do so. Speed-bumps happen to everyone and you will want the ability to remain nimble and address these issues. Unfortunately, certain operational costs do not pause during these speed-bumps, the landlord, third party vendors and your employees appreciate that you want to be nimble, but they also need to receive income. It is also important to keep in mind that although it is almost certain that your forecast will not be perfect, it is possible that you will be doing better than you thought and could use reserve capital to invest in opportunities that such early success would bring about.
When you need to address this question for your startup, remember that there is no substitute for planning and research as that has to be the basis for your estimates, but including wiggle room is more than a luxury, it is often a necessity. Any financing round, no matter how necessary, is at best an additional distraction to the execution of your focus on your product, so cutting things too close with capital can be as risky as raising much more than you need and giving away too much of your company. Finding the balance between those two risks is a key factor in remaining nimble and focused on your product instead of future capital raising.