When is the right time to raise capital? A guide for founders

Raising capital is one of the most critical decisions founders face. Timing your fundraising correctly can mean the difference between securing favorable terms and diluting your ownership too early. But how do you know when it’s the right time to raise? Let’s explore key benchmarks, factors to consider, and the risks associated with premature or delayed fundraising.

Understanding the startup funding stages 🔎

Each funding stage has distinct benchmarks and expectations. Here’s a general breakdown:

💡 Pre-Seed

This stage occurs before a product is fully developed. Founders often rely on personal savings, friends and family, or angel investors to fund early research, prototype development, and validation efforts. The focus here is on identifying a real market problem and conducting customer discovery. For insights on how to approach early fundraising, check out Carta's Pre-Seed Fundraising Guide.

Key KPIs:

• Customer discovery insights and validation
• Early prototype or MVP development
• Initial market research and problem identification

Best time to raise:

• When you have initial proof of concept and validated demand through customer discovery.
• Before running out of personal savings, ensuring you have enough runway to develop an MVP.

🌱 Seed

At this point, a startup has an MVP (Minimum Viable Product) and is testing its value proposition. Investors expect to see some early traction: this could be initial users, beta customers, or even small amounts of revenue. The goal is to validate market demand and build towards product-market fit. Y Combinators’s Guide to Seed Fundraising offers tactical advice on securing seed funding and crafting a compelling investor narrative.

Key KPIs:

• Revenue milestones: Ideally $10K MRR
• Customer retention & engagement: Early adoption and reduced churn rates
• Market demand: Increasing inbound interest from customers or partners
• Unit economics: CAC vs. LTV trends

Best time to raise:

• When you have a functional MVP with early traction.
• If user engagement and adoption show positive trends.
• When there’s growing inbound interest from investors or partners.

📊 Series A

This stage is about scaling a validated product. Investors will look for consistent revenue growth, strong market demand, and a business model that can scale. A common benchmark for Series A funding is generating $1M in Annual Recurring Revenue (ARR) or demonstrating strong user growth and retention. Check out Carta’s Guide to Series A Fundraising. For deeper insights into venture deal structures, Venture Deals by Brad Feld & Jason Mendelson is a must-read.

Key KPIs:

• Revenue milestones: ~$1M ARR
• Customer growth & engagement: Increasing retention rates and reduced churn
• Market expansion: Strong market demand with scalable acquisition strategies
• Operational readiness: Clear roadmap and hiring strategy

Best time to raise:

• When you have clear product-market fit and strong revenue growth.
• If your startup is ready to scale operationally and expand into new markets.
• Before needing cash urgently, allowing room for negotiation and better terms.

📈 Series B and beyond

Here, startups focus on expansion, process optimization, and market dominance. Investors typically look for $5M+ ARR, strong unit economics, and a proven ability to scale effectively. As startups grow, it becomes crucial to understand equity structures: Carta’s State of Private Markets provides a detailed guide on managing equity and valuation.

Key KPIs:

• Revenue milestones: $5M+ ARR
• Scalability: Optimized growth strategies and strong financial performance
• Customer retention & engagement: Low churn and high customer lifetime value
• Process & operational efficiency: Streamlined systems and automation

Best time to raise:

• When your startup is demonstrating significant traction and market leadership.
• Before expansion costs become unmanageable without external capital.
• If the market is favorable and investor appetite is high.

Time Between Rounds ⏰

The time between funding rounds varies based on company performance, industry trends, and investor expectations. According to Peter Walker, the median time between Seed and Series A funding is approximately 2.1 years, while the gap between Series A and Series B is 2.4 years. However, high-growth startups may raise faster, sometimes in under a year, whereas others may take longer to reach the necessary milestones.

Factors Affecting Fundraising Timelines:

• Market conditions: Favorable conditions can shorten fundraising cycles, while downturns may delay raises.
• Revenue growth: Companies with accelerating revenue growth tend to raise more frequently.
• Burn rate & runway: Startups must time their raises strategically to avoid running out of cash.
• Investor sentiment: If venture funding slows, startups may need to extend their runway before raising the next round.

The risks of raising too early vs. too late ⏳

• Raising too early: If you raise before validating your product or market fit, you may face low valuations, excessive dilution, and pressure from investors before your startup is ready to scale.
• Raising too late: If you wait too long and run low on cash, you may be forced to accept unfavorable deal terms, conduct a down round, or risk shutting down operations due to lack of capital.

How valuation impacts your raise 📊

Valuation plays a major role in fundraising because it determines how much equity you give away. A higher valuation means you can raise more capital while giving up less ownership, but it also sets expectations for future performance.

Key factors that influence valuation include:

• Revenue growth rate: Investors favor companies with steady and significant revenue growth.
• Market size & competitive positioning: Startups in large, high-growth markets often receive higher valuations.
• Investor sentiment & economic conditions: During bullish markets, valuations rise; during economic downturns, investors become more cautious.
• Previous fundraising terms: The valuation from prior rounds affects how much dilution occurs in future rounds. Early-stage dilution can impact long-term ownership. Carta’s State of Private Markets provides deeper knowledge on cap table management and fundraising strategy.

Final thoughts: be strategic about fundraising

Raising capital isn’t just about securing funds: it’s about ensuring you can sustain and scale your business effectively. Founders should focus on building strong fundamentals before seeking investment and avoid fundraising simply because it’s expected. The right timing, valuation strategy, and investor fit will set your startup up for long-term success.

Need help timing your raise? Capwave AI offers insights and tools to help founders navigate their fundraising journey efficiently.