This is how long a startup funding round lasts

This week I was asked how long a round of funding should last by a founder that I am coaching. This is his first startup and while he is a smart guy, he has never been through the investor funding process.

Most high-growth startups will go through multiple rounds of funding before they find their path to a successful exit. The industry classifies those as Seed → Series A → Series B → so on. It is uncommon for a startup to have an initial public offering (IPO) before reaching the Series C round and beyond.

A good example of the type of startup that would take longer is biotech firms. Those require years, sometimes decades, of testing to get approval for their product and so they often have a longer lead time to an exit. I saw this with the biotech incubator that I used to manage. The companies lived off of grants for years, then matured to raise investor capital, and finally released a product into the market. Often after 5-10 years of research and development.

Factors that impact how long a funding round lasts

The biggest factor that will determine how long your latest round of capital will last is your burn rate.

A startup’s burn rate is the amount of money it spends each month. For example, between payroll, software subscriptions, and travel to conferences or investor meetings, your startup might be spending $20k per month. If your latest round of funding was $2M, then you have 10 months worth of capital on hand.

During tough economic environments, where investors have lower-risk investment options that are returning strong yields (such as when Treasuries were recently over 5%), you will see founders cutting costs to try and extend their runway. Using the above example, if the founder can cut out $5k per month in spending over one year, they just bought themselves four extra months.

That becomes important because founders have to start the fundraising process for the next round of capital well in advance of when they will need the money in the bank. When they fail to do that you will often see founders raising what is called a bridge round, which often has unfavorable characteristics because it was done quickly and in an emergency state, i.e. just to keep the business afloat.

Historically, for most startups, you can count on a round of capital lasting between 12-18 months.

If you as the founder want a more specific answer, or you have investors pushing you for one, it is best to fall back on your projections for that answer. If you have developed a quantitatively supported set of financial projections, those should have the answers you need. If you haven’t bothered to build a set of projections, then get busy. Good founders know their numbers.

If you are going to be raising a round of funding, there are a few ways I can help.

1) Sign up for my Investor-Ready program where I work hand-in-hand with you to get you ready to raise capital.

2) If self-guided is more your speed, check out my Startup Funding Toolkit.