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When raising funds for a start-up with a working prototype/alpha product, should you refrain from asking for a specific amount? Or should you provide a preferred amount, and a backup plan for a smaller amount? I've read experts' opinions going both ways, so I'm wondering what you all think.

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IMHO, you should present the minimum amount required to reach next milestone. Less than that and you cannot make this business happen. More than that amount, and you could develop it faster, it could grow faster, etc.

Be sure that if you do not give those numbers and if your pitch and your business opportunity is great, then you will have to answer:

  1. How much do you need? => financial planning
  2. How much of the company do I get? => company valuation
  3. How are you going to spend my money? => dev planning
  4. What do we do in 5 years?

Most of VCs know that those numbers are often not that accurate, in particular because startup founders tend to be optimistic. However, this shows that you did your homework and that you can get your hands dirty.

At the end, if they like the business opportunity you are offering them, they will spend time on your business plan, make adjustements to your future team, and the final amount they will invest could be much larger than what you asked at the beginning.

I hope this helps.

Best regards.

PS: Presenting a backup plan is risky as it shows that you are not 100% confident in your business... Not presenting a backup plan is risky as it shows that you did not think to all potential events that could occur "outside" your business... Have fun^^

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Thanks for your answer. Let me rephrase what I meant. I'm wondering if I present an investor with a plan that says I need 500k to reach the next level, but I can also do it in 50k, but slower with lower quality. How does that look from an investors perspective? – Nick Jan 5 '12 at 3:46
@Nick: IMHO, it is best to present the minimal solution first. Then just say that with 500k, you will go faster with more features. Not sure that presenting quality as being negotiable is a good idea though. However, some VCs will not consider your business opportunity if you ask for 50k only... So you will surely have to adapt your pitch depending on your audience (BAs, small VCs, big VCs, etc). – Korchkidu Jan 6 '12 at 10:25

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