This is the fourth post in the NYU Founder’s Guide to VC series. Read Understanding VC Fund Structure & Economics, From First Pitch to First Check, and Why Founder Dilution Matters first. Here we cover how to calculate your runway and manage your cash post-raise.
One of the most common questions I get at the Institute is simple. How much money should I raise for my startup?
The answer is not arbitrary. It is a math equation based on time and milestones. If you raise too little, you will run out of cash before you prove you are worth more. If you raise too much, you dilute yourself unnecessarily.
Raising capital is not the finish line. It is the starting gun for a sprint to the next valuation inflection milestone. Here is how to plan your raise, manage your time, and avoid the spending traps that kill early-stage startups.
The 18 to 24 Month Rule
You should target raising enough capital for 18 to 24 months of runway. This is not a random range. It is based on the lifecycle of a fundraising round.
It takes about 6 months to raise a round of capital. If you only raise 12 months of cash, you have to start fundraising again in 6 months. That leaves you almost no time to actually build the business and make the progress that the next round of investors seek.
You need 12 to 18 months of pure execution time to achieve the meaningful milestones that will attract the next round of investors. Those investors will want to see that you have de-risked and grown the business significantly since the last check was written.
Everything takes longer than expected. Product development is delayed. Pilots run over. Sales cycles drag on. Hiring that new employee takes longer than expected. You need to use non-dilutive funding to buy yourself more time.
NYU offers non-dilutive funding through participation in the Startup Accelerator Program (for students) and Tech Venture Program (for faculty & researchers). Faculty and researchers should look into the TAC awards, as well as the TTP and SBIR/STTR grant programs offered by the federal government. Whether you are a student or a professor, you should also continuously look for grants from foundations and industry partners. This is the cheapest money you will ever get.
The Best Money Comes from Customers
If you walk into the Leslie eLab and look at the steps, you will see a quote from Esther Dyson. "The best investor in the world is your customer."
This is not just decoration. It is the truth. Before you look for investors, look for customers who can fund you. Revenue is the best form of non-dilutive capital.
If you are a B2B startup, ask for paid pilots. Never do free pilots. When a company pays for a pilot, they have skin in the game. It forces them to navigate their internal bureaucracy and get procurement approval. That friction is a feature, not a bug. It proves the pain point is real and increases the likelihood that they will actually use your product and give you meaningful feedback.
If you are building a physical product, look at platforms like Kickstarter or Indiegogo. These allow you to pre-sell your inventory before you actually make it. Getting customers to open their wallets early is the ultimate form of market validation.
The Hidden Cost of Fundraising
Capital comes with a cost that does not show up on a spreadsheet. That cost is distraction.
Fundraising is a full-time job. It typically requires one founder, usually the CEO, to spend nearly 100% of their time for several months on meetings, diligence, and pitches. During this time, product development and sales often slow down because the visionary is stuck in coffee meetings.
As a student balancing coursework or a faculty member running a lab, this is particularly dangerous. You cannot effectively do both simultaneously. One will fail.
Avoid the Post-Raise "Sugar High"
The most dangerous moment for a startup is the day the wire transfer hits the bank account.
Suddenly, you feel rich. It is easy to lose discipline. First-time founders often spend on the wrong things. They rent office space they don't really need. They pay for unnecessary website redesigns or rebranding. They hire too many people too fast before they have product-market fit.
Once you increase your burn rate, it is painful to stop...and will take much longer than you think. Every dollar you spend on overhead is a dollar you cannot spend on product or customer acquisition.
Be disciplined. Stay in the NYU co-working spaces as long as you can. Keep your team lean. Spend money only on things that directly drive value creation and get you closer to your next milestone.
The First Round is a Promise. The Second Round is a report Card.
Your first round of capital is often raised on a promise. You are selling a vision and a team.
Your second round will be measured by performance. Investors will look at what you achieved with the first round of cash. They will ask: Were you a good steward of that capital? Did you accomplish what you promised?
If you raised $1 million to get to 10 customers and you only have 2, you will struggle to raise again regardless of how good your vision is. This is the bridge to nowhere. You must have a clear plan for exactly what milestones you will hit with the cash you are asking for today.
Leverage the Home Field Advantage
You do not have to figure this out alone. As an NYU founder, you have a massive advantage.
Leverage the mentorship available through the Entrepreneurial Institute and the Innovation Venture Fund. We can help you model your runway and sanity-check your milestones.
If you are serious about preparing for institutional capital, apply to the Max Stenbeck Venture Equity Program. We run this every fall specifically to help NYU founders build a fundraising strategy, understand term sheets, and connect with the right investors.
Make strategic decisions about when and how to raise. Raising money is a tool to build a business, not the goal itself. Plan accordingly.
