“Always raise more money than you think you need.” – people asking you to take their money.
Actually, they’re right. It’s not a ruse devised by greedy vulture capitalists vying for extra points of equity.
You do need more money than you think. Why?
Today you have a business plan, featuring a plausible growth trajectory (neither too conservative nor too optimistic), and an associated cost structure to drive signups and service customers. Costs arise ahead of associated revenue, especially for SaaS companies, so you need a cash investment to fund that growth. Your projected cash low-point is $X, thus you need to raise $Y, not just to service the operational cash requirements, but to de-risk the company with additional investments you couldn’t otherwise afford to make.
But what if, nine months from now, revenue isn’t growing quite as quickly as you planned? You still signed that five-year office lease; hired support, sales, and engineering; and brought in training, a comptroller, and a business operations person. Marketing is over-spending to compensate. You’re burning more money than you expected, but the correct course of action is to forge ahead and let revenue catch up, not fire half your team and retreat. So, you’ll need more money than you planned.