Startup Funding
(Alternate version Startup Funding)
- You need money. You don’t have enough revenue.
- Before you raise: do you actually need outside money?
The Road Map Today
- Should you raise at all?
- Where does the money come from — and what does it cost you?
- Who are investors and what do they want?
- How do you actually raise?
- What are you signing?
Should You Raise At All?
- Raising money is not an achievement — it’s a trade
- You are selling a piece of your company, permanently
- VC money = growth-or-bust trajectory
- Many great companies are bootstrapped
- Can you reach profitability without outside capital?
Where Might Money Come From?
- Keep all your equity:
- Consulting / Side Work
- Grants (NSF SBIR, NIH)
- Give up some equity, stay in control:
- Friends and Family
- Crowdfunding
- Angels
- Give up equity and a seat at the table:
- Incubators / Accelerators (Y-Combinator, TechStars)
- Micro VCs (Precursor, Hustle Fund)
- Venture Capital (North Bridge, NEA)
What Stage Is Your Business?
- Pre-seed: idea/prototype, no revenue — $50K–$500K
- Seed: early users, maybe revenue — $500K–$3M
- A-Round: real traction, growing fast — $8M–$25M
- Note: stage names have inflated
What Do Investors Want to See?
- Team — expertise and resilience
- Market — is the TAM big enough?
- Traction — show don’t tell
- Insight — do you see something others don’t?
- Timing — why now?
Understanding Your Investors: VCs
- Fund structure: Limited Partners → GPs → Startups
- GPs get paid: 2% management fee + 20% carry
- 10-year fund life: 5 years investing, 5 years returning
- Returns follow a power law — one deal returns the whole fund
- This is why VCs need hypergrowth
- Wrong tool for a lifestyle business
The Fundraising Process
- It’s a sales process — treat it like one
- Warm introductions only — cold emails don’t work
- Run a parallel process — many investors at once
- Timeline: 3–6 months
- Create urgency
- Get a lawyer before you sign anything
How Money Is Structured: Equity vs. Debt
- Equity — sell a percentage. Permanent. No repayment.
- Debt — borrow and repay with interest. Keep ownership.
- Most startup funding is equity, or converts into equity
- Equity investors become part-owners — they have opinions
SAFEs and Convertible Notes
- Early deals rarely use priced equity rounds
- SAFE: no interest, no maturity date, converts at next round
- Convertible Note: similar but carries interest and maturity date
- Both include a valuation cap and/or discount rate
- SAFE is now the industry standard
Valuation and Dilution
- Pre-money: what your company is worth before the check
- Post-money: pre-money + investment
- Example: raise $1M on $4M pre-money
- Post-money = $5M. Investor owns 20%. You own 80%.
- Every round you give up a slice — this is dilution
- Small slice of something big beats all of something small
How Dilution Compounds
| Round | Raised | Pre-money | % Sold | Founder Owns |
|---|
| Seed | $1M | $4M | 20% | 80% |
| A | $5M | $15M | 25% | 60% |
| B | $15M | $45M | 25% | 45% |
- 10–20% at IPO is normal — the company is worth far more
- Watch out for excessive early dilution and option pool requirements
Term Sheets — What You’re Negotiating
- Non-binding summary of the deal
- Economic terms: valuation, option pool, liquidation preference
- 1x non-participating preference = founder-friendly
- Participating preferred (“double dip”) = not
- Control terms: board seats, pro-rata rights
Board, Control and Governance
- VC money usually means giving up a board seat
- Board controls: hiring/firing CEO, selling the company, future rounds
- Early: founders control. Later: balance shifts.
- Founders get fired by their own boards — this happens
- Understand what you’re signing before you sign it
Fund Raising Step By Step
- Develop a plan that balances capital/time/milestones
- Decide what need to do now, and what can be deferred
- Define your financing milestones
- Determine how much capital to raise for your first milestone
- Ensure you position yourself for the next financing, ideally at a step-up
Key Takeaways
- Raising is a trade — only do it if you need to
- Know what each funding source actually costs you
- Investors are not your friends or your bosses — they are partners with their own agenda
- Dilution compounds — model it before you sign
- The term sheet is where you win or lose control of your company
- Get a lawyer. Read everything.
Thank you. Questions?
(random Image from picsum.photos)