The Ask, the Financial Model and Use of Proceeds

Size the round from the milestones it must reach and the runway those milestones require, then say exactly how the proceeds will be spent; SEC staff describe both as basic readiness steps ^[1]. Projections should rest on a reasonable basis, be shown as a probable amount or reasonable range, and keep anything not grounded in operating history clearly separate from what is ^[3]. Private companies do not get the statutory safe harbor for forward-looking statements, which covers only reporting issuers and excludes IPOs, so the antifraud rules apply to every number in the model ^[4][9].

Start from milestones, not from a number

SEC small-business staff say the answer to 'how much are you raising?' should reflect a thoughtfully calculated runway based on projected expenses, and that investors expect a plan for how the money will be spent to further the company's goals ^[1]. Y Combinator's seed guide, written by Geoff Ralston, frames the same idea around milestones: raise as much as is needed to reach the next 'fundable' milestone, which will usually be 12 to 18 months later ^[2]. It suggests answering the question as 'we are raising for N months and will need $X,' and offering multiple versions of N and a range for X tied to different growth scenarios depending on how much is raised ^[2].

The milestone should be the evidence the next investor will need, such as a revenue level, a regulatory approval, a pilot converting to a contract, or for a fund manager a first close large enough to build a credible portfolio. Work backward from it: the hires, spending and time needed to reach it, plus a buffer for the fact that the next raise will itself take months. An ask that cannot be traced to a milestone reads as arbitrary, and one that leaves no margin for delay reads as fragile.

Use of proceeds: specific enough to test

A use-of-proceeds slide is a promise about priorities. Regulation Crowdfunding's disclosure rule offers a useful standard even for raises that do not use it: an issuer must give a reasonably detailed description of the intended use of proceeds so investors can understand how the money will be used, describe each probable use and the factors it will weigh if several uses are possible, and explain what it will do with any proceeds above the target amount ^[5]. For a Regulation D raise the same discipline works: allocate by category and milestone rather than by percentage alone, state what the money will not be used for, and show what you would cut if you raise the low end of the range.

• Tie every line to a milestone: 'four engineers to ship the enterprise tier by Q3' rather than '40% product.'
• Show headcount by month, since people are usually the largest cost and the slowest to adjust.
• Show the minimum viable raise and what it buys, and what an oversubscribed round would add ^[2][5].
• Disclose any proceeds going to insiders, such as repaying founder loans or buying existing shares; investors will find these in diligence.
• Keep the slide consistent with the model and the term sheet so a reviewer can reconcile all three.

Dilution: what the ask costs

YC's guide describes the choice of how much to raise as a trade-off among how much progress the money buys, credibility with investors, and dilution ^[2]. It says that giving up as little as 10% in a seed round is wonderful, that most rounds will require up to 20% dilution, and that founders should try to avoid more than 25%, while insisting that the amount must be tied to a believable plan ^[2]. Raising too little risks running out before the milestone; raising too much at a price the company cannot grow into risks a flat or down round later. The Valuation and Deal Math course walks through pre-money, post-money, option pools and cap-table mechanics; this lesson focuses on how to present the ask.

The financial model: assumptions over precision

Early-stage investors rarely believe a five-year forecast, but they read it closely for what it reveals about the founder's grasp of the drivers. The SEC's projection guidelines in Regulation S-K Item 10(b) are written for SEC filings, not private decks, but they are a sound template ^[3]. They say management must have a reasonable basis for its projections, though a history of operations is not always required to have one ^[3]. They advise disclosing the most probable specific amount or most reasonable range for each item, warn against ranges so wide they are meaningless, and permit several projections based on varying assumptions ^[3]. They caution that projecting revenue without a measure of income is generally misleading, that projected measures not based on operating history should be clearly distinguished from those that are, and that projections based on history should not be presented without that history shown with equal or greater prominence ^[3].

Translated into practice: build the model from drivers (customers, conversion, pricing, churn, headcount, cost per hire), put the assumptions on one tab, show a base case and a downside case, and reconcile month one to actual results. An investor who can change three inputs and watch the cash runway move will trust the model more than one who is shown a polished output with no levers.

Valuation expectations and anchoring

Whether to name a valuation is a negotiation question. In three experiments published in 2001, Adam Galinsky and Thomas Mussweiler found that whichever party made the first offer obtained a better outcome and that first offers strongly predicted final prices ^[6]. The advantage disappeared when the other side focused on information inconsistent with the offer, such as its own alternatives, its reservation price or its own target ^[6]. For founders, this cuts both ways: an early, well-supported anchor can help, but an investor with many alternatives can simply discount it, and an unsupported number can end a conversation. YC's guide advises that it is best to let the market set the price by finding an investor to set the price or cap, and, where you must choose, to look at comparable companies and not over-optimize, since a high valuation does not increase the likelihood of success ^[2].

A workable middle path is to lead with the amount and the milestones, have a researched range ready if asked, and let competing interest do the anchoring. If you do name a figure, attach the reasoning, such as comparable rounds, revenue multiples or the dilution the plan can bear, so the number reads as a conclusion rather than a demand.

Forward-looking statements: caveats without a safe harbor

Private companies often copy public-company 'safe harbor' language into their decks. The statutory safe harbor in Section 27A of the Securities Act applies only to issuers that are subject to Exchange Act reporting requirements when the statement is made, and persons acting on their behalf, and it excludes statements made in connection with an IPO or in an offering by a partnership, LLC or direct participation program ^[4]. Even where it applies, it requires the statement to be identified as forward-looking and accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially ^[4]. A typical startup or private fund raise is outside it, so Rule 10b-5's ban on untrue statements of material fact and misleading omissions in connection with the purchase or sale of any security is the governing standard ^[9]. Specific, tailored risk factors next to the projections still matter, because they show the assumptions were disclosed, but boilerplate does not cure a projection without a reasonable basis.

Fund managers face an added rule: for SEC-registered advisers, targeted or projected returns are 'hypothetical performance' under the Marketing Rule, which requires policies ensuring relevance to the audience and enough information for investors to understand the assumptions, risks and limitations ^[8]. The Pitching Truthfully lesson covers enforcement cases.

What's different in 2026

Market data changes what a reasonable ask looks like, so date-stamp it. The Q3 2026 PitchBook-NVCA Venture Monitor, with data as of September 30, 2026, shows median 2026 deal values of $3.0 million at seed and $17.4 million at Series A, and median pre-money valuations of $18.3 million and $60.3 million; median deal value rose across all series except seed ^[7]. As simple arithmetic on those medians (not a reported dilution figure), a $3.0 million round on an $18.3 million pre-money sells about 14% of the company. J.P. Morgan's commentary in the report describes a bifurcated market in which perceived category leaders find conditions highly favorable while for others the process can feel prolonged and uncertain ^[7]. That argues for more runway buffer in the plan, not less. For fund managers, US VC funds raised $108.5 billion across 699 funds through Q3 2026, but funds of $500 million or more took 78.1% of capital while making up 6% of funds closed, and first-time funds raised just $4.9 billion across 81 funds ^[7]. An EisnerAmper audit partner writing in the report advises sizing a fund to match both GP objectives and LP appetite, and notes that LPs are demanding earlier proof points such as prefunded deals ^[7].

Worked example: building the ask (hypothetical)

• Milestone: $3M ARR with net revenue retention above 110%, the evidence the company expects a Series A lead to want.
• Plan: grow from 9 to 21 people over 18 months; fully loaded payroll plus hosting, sales tools and office totals $6.9M, offset by $2.2M of projected gross profit, for net burn of $4.7M.
• Buffer: add six months of end-state burn (about $1.8M) because the next raise may take two quarters, giving an ask of $6.5M; minimum viable raise $4.5M, which delays four hires and the second sales pod.
• Use of proceeds: 62% engineering and product hires to ship the enterprise tier, 26% sales and onboarding, 12% infrastructure and general; no proceeds to repay insiders.
• Model: driver-based, base and downside cases, with assumptions on one tab and the first three months reconciled to actuals; projections labeled as estimates with company-specific risk factors.
• Valuation: no number on the slide; a researched range from comparable 2026 rounds ready if asked, with the dilution the plan can bear (about 18% to 22%).

Key terms

Runway

How many months the company can operate on its cash at projected burn; the basis for sizing a raise.

Fundable milestone

The evidence of progress the next round's investors will need, used to define what this round must buy.

Use of proceeds

A description of how the money raised will be spent, ideally tied to specific milestones and showing the minimum and maximum cases.

Dilution

The reduction in existing holders' ownership percentage when new shares are issued.

Driver-based model

A financial model built from operating inputs such as customers, pricing, churn and headcount, so assumptions can be changed and tested.

Anchoring

The tendency for a first number put forward in a negotiation to pull the final outcome toward it.

Forward-looking statement

A projection or statement about future plans or performance; private companies generally lack the statutory safe harbor for these.

Hypothetical performance

Under the SEC Marketing Rule, results not actually achieved, including targeted or projected returns, which registered advisers may show only with conditions.

Check your understanding

Sources

1. [1]U.S. Securities and Exchange Commission, Capital-Raising Building Blocks, “Ready to Raise CAPITAL,” June 12, 2024 (last reviewed August 8, 2025).
2. [2]Y Combinator (Geoff Ralston), “A Guide to Seed Fundraising,” Accessed November 2026.
3. [3]Legal Information Institute, Cornell Law School, “17 CFR § 229.10 - (Item 10) General (Regulation S-K, paragraph (b): Commission policy on projections),” Accessed November 2026.
4. [4]Legal Information Institute, Cornell Law School, “15 U.S. Code § 77z-2 - Application of safe harbor for forward-looking statements,” Accessed November 2026.
5. [5]Legal Information Institute, Cornell Law School, “17 CFR § 227.201 - Disclosure requirements (Regulation Crowdfunding),” Accessed November 2026.
6. [6]Adam D. Galinsky and Thomas Mussweiler, via PubMed, “First offers as anchors: the role of perspective-taking and negotiator focus (Journal of Personality and Social Psychology 81(4):657-669),” October 2001.
7. [7]PitchBook and National Venture Capital Association, “Q3 2026 PitchBook-NVCA Venture Monitor,” October 2026 (data as of September 30, 2026).
8. [8]Legal Information Institute, Cornell Law School, “17 CFR § 275.206(4)-1 - Investment adviser marketing,” Accessed November 2026.
9. [9]Legal Information Institute, Cornell Law School, “17 CFR § 240.10b-5 - Employment of manipulative and deceptive devices,” Accessed November 2026.

Educational content only — not legal, tax, or investment advice, or an offer to sell or a solicitation of an offer to buy any security. Rules and data are described as of November 2026 and may change. Securities offered through Umergence LLC, Member FINRA/SIPC.