How much runway should you build during a fundraise?

Early-stage startup founders must’ve often heard from investors/advisors to build runway for at least 18 months when fundraising. Yet, quite a few founders plan for much less. “We will raise Series A in 9–12 months” is a risky strategy, usually driven by an attempt to limit dilution.

There is a simple back-calculation to justify a minimum 18 month runway.

But before that, one simple advice: You shouldn’t forever be in fundraising mode (always be pitching, but not always be needing money). Fundraising is a time sink and keeps founders from 100% focus on business. So when you fundraise, raise enough.

Now, the back-calculation:

1. When you’re in final paperwork stages of next fundraise, you should have at least 2 months of runway left in the bank. This is to protect yourself against hawkish investor behavior where they re-negotiate valuation/ terms at last minute (bad fish exist). If you’re days from being bankrupt, you’ll give in. But if you have some money left, you still have negotiating power or a chance to find an alternative.
2. It usually takes a good 6 months to close Series A paperwork from the time you generate serious interest from VCs. On average, 3 months for multiple discussions to get a termsheet, 1–2 months for due diligence/agreement drafting, 1 month for filings & closure activities.
3. To get to a point where you generate serious interest from VCs, you should’ve used the current capital to scale up to a stable, upward trend with at least 3–5x on key metrics (and also to provide commensurate valuation jump). Very rarely do early-stage startups have their growth channels figured out such that they can achieve this jump very soon, unless it’s viral (which you seriously cannot predict).
4. My advice is to keep a minimum 10 months for solid heads-down execution. This includes ~5 months of building & conducting growth experiments, and then the next ~5 months to apply those learnings to build a growth trajectory. This also builds in a little bit of buffer for 1–2 bad months (negative/ stalled growth) and recovering from them.

So, adding it all up, the thumb-rule is: 5 months build/experiment + 5 months apply/grow + 6 months fundraise + 2 months buffer = 18 months.

Even if you’re an adrenaline junkie, who doesn’t believe in too much buffer and is confident of shortening the fundraising process to 4 months — and if you raise for 12 months, you’ll have to initiate serious conversations around the 6–7 month mark, which still is too short of execution time in my opinion. It can happen, but in a FOMO market. Those days are gone.

In short, I strongly advise to fundraise for minimum 18 months.