Financing and Raising Capital


Bootstrap: Build a Company without Raising Money

How far you can bootstap the company before raising outside money? The more revenue and traction you show investors, the sweeter your first term sheet. Some startups may not need to raise outside money at all.

  • Bootstrapped, Profitable, & Proud. This series from Basecamp profiles companies that generate over one million dollars in revenues, didn’t take VC, and are profitable.

  • Spanx. Sara Blakely bootstrapped Spanx from a $5,000 investment into a billion dollar business. She owns 100% of the private company with no debt.

  • PlentyOfFish. PlentyOfFish founder Markus Frind never raised outside money. “By the time I found out what VCs were, I was already making millions in profit”. quoted. Frind owned 100% of the company when he sold it in July 2015 for $525 million.

  • Non-equity Crowdfunding. Raising money from non-equity crowdfunding sites (Kickstarter, Indigogo, etc.) is a fantastic deal for most founders. Companies get the money/capital they need, and don’t need to give up any equity to VCs. Have cake and eat it too.

Raising Money

  • How to Fund a Startup. By Paul Graham, 2005. As usual, Paul Graham’s essays are a good jumping off point. This one provides an overview of the startup funding process.

  • Fundraising Mistakes Founders Make. By Sam Altman, 2014. Talk to investors in parallel, not in series, to setup a competitive environment. Explain the company’s mission, product, current traction, future vision, the market, the competition, your long-term competitive advantage, how you make money, and the team.

  • Fundraising Survival Guide. By Paul Graham, 2008. Practical, day-to-day advice for founders of early stage startups. For example, fit meetings with investors into the spare moments in your development schedule, rather than doing development in the spare moments between meetings with investors. And be ready to “downshift” into consulting if necessary.

Angel Investors / Seed Funds

A Guide to Seed Fundraising. Geoff Ralston, 2016.

Dilution. Sam Altman, 2017.

Notes on Raising Seed Financing. By Chris Dixon, 2011. A great overview. Ideally, (1) raise money after you have a product / traction, (2) build momentum… (5) network like crazy, but “avoid anyone who asks you to pay for intros (even indirectly like committing to a law firm in exchange for intros).”

Upside Risk. By Sam Altman, 2013. Angels make their money from investing in rare companies that deliver 100x returns. The the real risk for angel investors is missing out on that outstanding investment, not failing to get their money back on their non-unicorn companies. “And yet angel investors continue to ask for onerous terms to mitigate their ‘downside risk.’ All this does is piss founders off, misalign incentives, and harm the investors’ chance of getting to invest in the best deals.”

The 7 types of angel investors - what is right for your startup? By Elad Gil, 2010.

How to reference check your prospective investor. Don’t be swayed by the investors’ perceived brand. Dig into the substance. Talk to other founders who have worked with the investor. By Manu Kumar, 2017.

Institutional Venture Capital

Growth Rounds

Securing A Huge Growth Round. By Founder Collective partner David Frankel.

Financing Structures

Convertible Notes

Convertible Notes and SAFEs are easy to negotiate and close. They are in widespread use and essentially standard for seed stage investments. However, there are a few drawbacks.

Convertible and SAFE Notes. Fred Wilson, 2017. Convertible notes and SAFEs defer the valuation and dilution. This can lead to confusion and misunderstandings between founders and investors.

SAFES and Convertible Equity

Should Texas Founders Use SAFEs in Seed Rounds? By Jose Ancer, 2014.

How Much to Raise and at What Valuation?

Startup Growth Calculator. Drag the sliders to get a rough idea of how much money your startup will need to raise. This tool is helpful but makes many simplifications that aren’t applicable in the real world.

What’s the Right Amount of Seed Money to Raise? By Chris Dixon, 2009. Raise “enough to get your startup to an accretive milestone plus some fudge factor. ‘Accretive milestone’ is a fancy way of saying getting your company to a point at which you can raise money at a higher valuation.”

Startups Should Raise Money at the Top End of Normal. By Mark Suster, 2011. Reach for a strong valuation, but reach too far and you might can get burned by the dreaded down round. “Most investors won’t want to go through the brain damage of doing a ‘down round,’ which creates tension between them and early investors.

Seed Rounds: How to Pick a Valuation. Joseph Walla, 2014. “Valuations have little basis in reality for early stage companies. You evaluate the team, product, market and other variables - then, make a general guess.”

The Equity Equation. By Paul Graham, 2007. When trading stock in your company for anything (money, an employee, etc.) the test for whether to do it is always the same. You should give up n% of your company if what you trade it for improves your average outcome enough that the (100 - n)% you have left is worth more than the whole company was before.

How to Value Your Startup. By Alex Blumberg, (2014). It’s all about the story. A podcast where Alex Blumberg documents his experience raising capital for a podcasting startup.

Valuation vs. Deal Terms

How to Build a Unicorn From Scratch – and Walk Away with Nothing. Heidi Roizen, 2015. “In all but the most glorious outcomes, terms will matter way more than valuations.” Founders need to understand what deal terms mean. “Downside protection” for investors

Signalling Risk

When an early investor decides not to invest in a later round, outside investors may take this as a “signal” that there is something wrong with the startup.

The Importance of Investor Signaling in Venture Pricing. By Chris Dixon, 2010. There are very few hard metrics in venture pricing. As a result, one of the primary valuation inputs is what other investors think about a company.

The Problem with Taking Seed Money from Big VCs. By Chris Dixon, 2009. If you take seed money from a big VC fund, be aware of the potential signalling risk if the VC fund decides not to invest in your Series A round. Other potential investors will think “if this top VC that has hundreds of millions of dollars and knows this company the best doesn’t want to invest, why would I?”

VC Signaling Coming Home To Roost. A more detailed post by Elad Gil, 2012.

But Sam Altman disagrees: “Many little things simply don’t matter very much–for example, the ‘signal’ sent when an early investor chooses not to participate in a later round. If the company is doing well stuff like this is easily overlooked, and if the company’s not doing it will struggle to raise money anyway.” Fundraising Mistakes Founders Make, 2014.

Due Diligence

After an initial meeting, VCs will dig deeper into your company: open the hood, kick the tires, shuffle the paperwork.

How To Obliterate A Multi-Million-Dollar Fundraising Process During Due Diligence. From Founder Collective partner David Frankel.


  • Form D. Have your lawyer file a Form D with the SEC.

  • Beware, Forms D Are Public. By Joe Wallin, 2013. When you raise money from angels or VCs you are generally required to file a Form D with the SEC and state securities regulators. You have 15 days to file it, and it will become public information.

  • Announce Your Financing In Conjunction With Your Form D Filing. Only announce a financing if you have a purpose for the publicity - i.e., you’re using the new money to hire new talent. “We’ve just raised $X and are hiring 20 engineers – see our jobs page and apply now.”

Fundraising Stories

Some founders have written detailed accounts of their fundraising process. You can learn a lot from them.

Cap Tables

  • MBA Mondays: Cap Tables. By Fred Wilson, 2011. Cap Tables (short for capitalization tables) are spreadsheets that show how much everyone owns of the company.

  • Broken Cap Tables. By Henry Ward, 2014. Most cap tables are wrong. Most investors don’t track their shares. Note holders are often forgotten. Employees suffer most.

Standardized Seed Financing Docs