A handy guide to picking a rational target check size Minimum Check SizesĪnother consideration should be the smallest acceptable check (i.e., a minimum check size). With the typical Series A being ~$10M and a Series B being ~$25M, for those rounds, the target follower check size would be $2M and $5M respectively. Usually, this process takes about 50 conversations.įrom these three variables, and with consideration for common round structures, we can recommend a simple equation to determine a target check size for a follower investor: A simple rule-of-thumb for setting a target check-size for follower investors.įor example, the target check sizes for a typical $2M seed raise with a willingness to pitch 50 investors would then be $400k ($2,000,000 / 2 / 50 conversations / 5% = $400,000). Lastly, because pitching investors requires so much effort, some founders prefer to give themselves a budget of time to meet a certain number of new investors rather than continue for an indefinite period of time. Based on our experience, we recommend founders assume a general 5% hit rate. Factors to consider when picking a target check sizeĪ target check size should be a function of three variables: the amount of equity available for purchase, the expected hit rate (the appetite of investors interested in the opportunity), and the amount of time the CEO is willing to spend on completing the capital raise (which may itself be further constrained by a pre-existing deadline - such as a closing date).įounders should be conservative when choosing a hit rate to ensure they have enough conversations to result in the desired target round.
That amounts to about half the round - leaving the other half open for follow-on capital from existing investors or for new investors. In early-stage rounds (Seed, Series A, and Series B), a startup typically sells a 20–30% equity stake, and the lead investor, the one who will set the deal terms, will commonly seek to own 10–20% with their check. The target check size should be different for investors that prefer to lead versus those that follow. Understand constraints heading into a roadshow.Ĭhoosing a target check size leads to a more productive process because founders can intentionally spend more time focused on funds that are most likely to be both interested and able to invest in deals like theirs. In this article, I want to explore how to rationally choose a target check size and why founders should probably aim higher.
I’ve seen founders arbitrarily target checks of $100–200k in seed rounds, and $500k in Series A rounds. To make an otherwise distracting and stressful fundraising process more efficient, it’s important to have a target check size. Founders seeking venture capital typically know their target round size, but they underestimate the sales process involved with successfully closing.
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