'I wish I had raised more money....'

Professor Jeremy Stone writes a great article in the 'what I wish I'd known series' and I want to comment particularly on this sentence: “I wish I had raised more money than I needed and worried less about dilution”.

Let me hijack his point and build on it: If you’ve got the choice –don’t do it on the cheap.

Why? Well, firstly – time. It takes a shocking amount of the senior management's time to close a funding deal (be prepared for at least 6 months of road shows and negotiations). Instead of building your company you are forced to be out pitching for more investment.

Secondly – The right level of funding can get you to a really good milestone. Too many companies just don’t give themselves enough runway to get to a really worthwhile milestone…so the next round investors don’t give you (or your first round investors) the valuation you were expecting.

Thirdly – IT NEVER GOES TO PLAN. Revenues are usually slightly further out than you expected. Scientific milestones take longer to meet than you anticipated. Key management people unexpectedly leave or fail to deliver…in short, something happens and you put your self at great risk of ending up with cap in hand trying to get more money when you are in a really bad negotiating position.

Even if it takes more dilution it is still worth making sure you are funded to a significant milestone AND you have some money put aside for contingency.

Does anyone have any rules of thumb for how much contingency costs you should budget in for an investment / funding round?