I've been running a site (community platform) for a couple years and now we are growing fast, getting strong user traction and started implementing a customer oriented business model. In order to speed up growth I need to redo the platform to make it more customized, stable and scalable. I teamed up with technical co-founder, got advisory support and the project has attracted the attention of everyone I showed so far.
To rebuild the site (and evolve it to a better and more customer-tailored solution) I need an in-house dev team, full time dedication and cover some overheads like servers or small office. For this I want to pitch to VCs but I can't figure out what funding stage we are, thus what we are looking for.
Considering the site already exists in a primitive form of the concept, this would be presented as a working prototype with strong proven insights of the market. Until now we have been funded through donations so that could be considered as seed funding to bring the idea to market.
If I look to my cost structure for the next 12 months is:
Total of 350K euros.
According to my knowledge under 500K is seed round.
However we already have user traction, a prototype in market and crowd funded.
I believe we already passed seed stage, but a rough estimation of the costs are still under 500K. I can't figure out how other companies within the market have Series A rounds with several milions. What am I doing wrong, the costs should be increased (eg. bigger team) and extended to more months or we are still raising for seed capital? How do you determine your fund raising stage?
Thank you in advance
What the round is called doesn't really matter. Call it an A round since it'll be your fist stock issuance to outside investors.
Since you have revenue, you're in a strong position with VCs; at least stronger than most companies seeking their first round. It's important to think beyond "accounting thinking". Yes, 350K is what you're projecting today but what if in 3 months, you come up with an opportunity that'll increase your burn rate by 30K per month but, that'll increase revenue or expand your product line into a new market? You don't want to have to go back to raising money every time an opportunity comes around. You won't grow your business by being constantly constrained by cash.
You should ask for at least twice your projected burn rate. A savvy investor will understand and actually appreciate that.