Fundraising

Launching the First-time Fundraising Series

“How do I find investors who are a fit for what we’re building?”

“How long do you think it will take me to raise this round?”

“What feedback do you have on my deck?”

“How do I convince an investor to lead our round?” (spoiler: a trick question!)

In our open office hour meetings, founders often have tactical questions about running their first VC fundraising process. Because every situation is different, broadly relevant advice is scarce. That said, there are certain facets of investor psychology and fundraising mechanics that are nearly universal. While many of them are obvious to investors, they are invisible to founders who are new to raising venture capital.

This blog series will not discuss data rooms, term sheet negotiations, Board meetings, or investor relations; there is a wealth of content on these topics already. Instead, we will focus on how to go from considering fundraising to having a term sheet in hand. Hopefully this series will shed some light on how VCs think and how founders can navigate the information asymmetry.

This series has three parts: 

  1. Deciding to raise: When and why is venture capital a good fit for a company? What are the trade-offs of raising? Are all VC firms the same? If venture capital is not right for a company, what are the alternatives?

  2. Running a competitive process: How do you minimize fundraising pain and maximize the odds of successfully raising? How do you find, approach, and impress investors?

  3. Building a compelling deck: What is the goal of a pitch deck? What are investors looking for? How do investors decide to take a meeting? How should a deck be structured? 

If you have any questions, feedback, or ideas for future posts, please let us know via twitter!

First-time Fundraising: Deciding to Raise

This is part 1 of a 3-part series on First-time Fundraising. You can read the overview of this series here. Here are part 2 and part 3. 

What does “venture-scale” mean?

If you decide to raise venture capital, you should know what exactly you’re signing up for. Let’s start at the beginning: what is venture capital? 

In simplest terms, venture capital is money invested into privately-owned companies with a high risk profile & outsized growth potential. 

An underrated element of venture capital is that VCs manage other people’s money. VCs raise capital from investors called “Limited Partners” who are typically high-net-worth individuals, family offices, corporations, or institutions such as endowments, foundations, and pensions. These LPs invest in VCs for various reasons, but generally, LPs are targeting 3x+ returns on early stage funds over a ~10-year time period.

Related to these return expectations are the definitions of “high risk profile” and “outsized growth potential”. While these terms will vary depending on VC fund size, structure, and strategy, seed-focused VCs generally abide by the assumed constraints of the power law. According to the power law, 80% of the returns come from 20% of deals (if not even more skewed). Said differently, VCs assume that 80% of their investments are unlikely to generate returns (this is the “high risk” part). As a result, each individual investment must have the potential to compensate for the losses of the rest in order for the fund to achieve its overall return goal (this is the “outsized growth potential”). For a deeper and more technical explanation of power laws in venture, check out Jerry Neumann’s analysis here.

In making investment decisions, VCs often evaluate whether a given investment has the potential to “return the fund”. Here’s a quick example. If a $50M seed fund owns, on average, 10% of each portfolio company at exit, the company will have to sell for $500M for the investment to “return the fund”. In order for the investment to 3x the fund, it would have to sell for $1.5B, and so on. The actual analysis regarding portfolio “survival rate”, dilution, follow-on investments, exit magnitude, and time period will vary from firm to firm, but this simplification illustrates why VCs generally shy away from sub-$1B potential outcomes, let alone sub-$100M ones.

Depending on business type, this return expectation dictates that a company has to grow fast (often 200-300% year-over-year consistently) and achieve $100M+ (if not $1B+) of revenue per year within 5-10 years. Of course, these goals vary by business model and fund type/size. While a $100M exit would not move the needle on the returns of a $2B fund that invested $2M at a $20M seed valuation, a $10M micro-fund (or an angel investor) that invested at $500k at a $5M pre-seed valuation could be thrilled. Understanding whether a VC’s deployment strategy and return expectations are aligned with your business goals is critical to making the right fundraising decision. 

So, should I raise?

Raising capital from outside investors doesn’t just affect your cap table and balance sheet; it impacts the operations of your business. Choosing to take on outside investors, whether they are individual angels or institutional VCs, is a big decision. 

A few key questions to consider:

  • Is this business opportunity venture-scale? Expectations for revenue, market share, and margin will vary by company, but there has to be potential for an outsized outcome as described above.

  • Are your aspirations for this business aligned with investors’ expectations? Do you want to try to build a multi-hundred-million-dollar business? Are you excited about that risk/reward trade-off? 

  • Do you need to raise capital? If profitability is within reach, you may not need to raise any external capital to run or scale your business. But in some cases, money is required for upfront product development, investment in key talent (including founder compensation!), compliance/security requirements, etc. In other cases, the competitive dynamics create urgency to capture market share, and capital is critical to accelerating sales, marketing, and customer support. Ask yourself what the alternative is if you don’t raise, and if the difference to the business trajectory isn’t material or existential, it is worth seriously considering alternative pathways.

Even more important than whether VC is a good fit for the business is whether VC is a good fit for the founder. By raising capital, founders potentially gain:

  • Network: Investors often have broad relationships that can help with hiring, business development, future fundraising, and liquidity.

  • Counsel: Some investors have specialized backgrounds in functional areas or verticals. While the tactical relevance of this experience may be limited, access to hundreds of data points can provide helpful benchmarks, aggregated best practices, and foresight in avoiding common pitfalls.

  • Accountability: Having to report to shareholders (and potentially Board members) provides a forcing function that can improve discipline, focus, and performance.

Of course, the true value-add of VCs (both individually and as a group) is variable and debatable, but if the above doesn’t excite you, I’m sorry to say that this is as good as it gets 😅 In exchange for the above, by raising capital, founders give up:

  • Full autonomy: Once you have external investors, the business is no longer entirely “yours”, and you have a fiduciary responsibility to act in the best interest of all shareholders. While issues of “control” are generally limited at the early stages, you still give up total independence.

  • Optionality: The stakes are higher once you raise external capital. While good investors tend to support founders’ decisions even if they diverge from the original plan, fundraising creates an inherent pressure to pursue larger outcomes. Because of the dilution, increased burn for the sake of growth, and additional risk, the venture track may ultimately be less financially lucrative for founders than bootstrapping would have been. 

  • Peace of mind: While the additional accountability may be a net positive, let’s be honest, having investors can be a pain in the neck. If you became an entrepreneur because you cannot stand to work for anyone else, having VCs may not be your cup of tea, either!

How much should I raise?

If despite all these caveats you still think venture capital is the right path for you and your company, you are now tasked with figuring out how much to raise.

There are two main elements to this question. The first is specific to the company and operating strategy. Working backgrounds from your end goal, think through the specific stage-by-stage milestones that you need to achieve, and consider how much you need to raise in order to reach the next set of goals.

The second is specific to the market: what’s “in market” for a specific stage? For example, raising a $10M-15M Series A (as of 2022) is not unreasonable, but raising an $8M pre-seed round is anomalous. Fundraising outcomes are not evenly distributed, and if the round you need to raise, for all good reason, outside the typical ranges for that stage, creating a viable fundraising strategy is trickier. The best way to get a sense of where your round lands is to chat with other founders (particularly those who have run a fundraising process recently) and investors to get input on what they’re seeing regarding valuations, round sizes, and other benchmarks. Companies like Pitchbook also regularly publish fundraising data, which can provide useful ranges.

If not VC, then what? 

If you decide that VC is not the right fit for your company after all, what are your options? Below are some alternative funding sources. This article also provides a good overview of the different funding buckets and trade-offs. 

Below are a few resources to consider:

Up next: running a competitive fundraising process. If you have any thoughts / feedback, reach out via twitter (@geri_kirilova) or email (geri at laconia dot vc). 

First-time Fundraising: Running a Competitive Process

This is part 2 of a 3-part series on First-time Fundraising. You can read the overview of this series here. Here are part 1 and part 3. 

You’ve decided raising venture capital is the right move for your business. How do you set yourself up to run a tight process and maximize the odds of closing your round? 

Hard vs harder raises

While raising is never easy, closing a round is hardest when it lacks momentum and investor competition. While fundraising has some similarities to b2b sales, there is one key difference: there is no inherent latent market demand for your round, and you can’t convince someone to buy. You have to generate sufficient demand and make investors want to invest.

It is very difficult to have active fundraising conversations and build top-of-funnel investor interest at the same time. Ideally, a critical mass of investors will consider the round at the same time, generating competition and a healthy dose of FOMO. Nothing ever goes entirely according to plan, but understanding these dynamics and spending sufficient time preparing before you kick off your raise can meaningfully accelerate your fundraising timeline. 

As we’ve written about before, early stage investors over-index on trust and belief. Founders with strong pre-existing relationships with investors, proximity to VC networks, and a “track record” typically have lower hurdles to overcome. But if you’re not Adam Neumann, you will likely have to set the foundation for a strong offensive position. 

You can break down the elements of a successful fundraising process into the following phases:

  1. Build a pipeline of prospective investors

  2. Establish familiarity with and/or access to these investors

  3. Prepare your materials

  4. Run a fundraising process

Build a pipeline

If you are setting out to raise a pre-seed ($500k-$1.5M) or seed ($1M-$4M) round, I recommend building a list of at least 50 qualified prospective investors to start. Make sure these investors are aligned with your stage, round size, sector, business model, geographic location, and values. Jenny Fielding (General Partner at The Fund) built a great Google sheets template (more context on using this template here). 

Finding investors that are a fit for your startup is the first challenge. VCs are easy to track down, but if you are raising a pre-seed round of less than $1M, you will likely want to supplement your list with prospective angel investors. Platforms like Crunchbase and Pitchbook generally have up-to-date info on active investors and recent deals. You may also want to check out resources like OpenVC, No Warm Intro Required List, and First Round’s Angel Directory. Twitter can also be a good place to discover active investors and communities (e.g. Amanda Robson from Cowboy Ventures has put together a list of 100 female and non-binary operator angel investors). For more context on how to build an angel network from scratch, don’t miss this article by Sapna Shah (angel investor, retail expert, and three-time entrepreneur). 

Establish familiarity and/or access 

Once you have this list, you need to find a way to connect. Ideally, an introductory meeting will establish mutual fit and interest. In this meeting, you should generally cover your background and vision for the company, in addition to learning about the firm’s investment strategy and general process. You can also use these meetings to further expand your network, as these investors may have ideas for others you should speak with as well. (Note: if you know that a specific investor prefers not to meet companies too far in advance, or generally moves very quickly, you may not need to meet them months before you raise. In those cases, it can be sufficient to just make note of how you will get in touch with them when the time is right – i.e. Do they have an open submission form? Do you know someone who can connect you?)

Inefficient and suboptimal as it may be, the vast majority of investors still prioritize warm referrals over unsolicited pitches. Your fundraising process will likely rely on a mix of both. 

If you are asking someone to make a “warm intro” for you, make it easy for them. This article on forwardable introduction emails by Alex Iskold (Managing Partner at 2048 Ventures) provides a simple overview on how to make this request.

If you are reaching out cold, make sure your efforts are targeted and personalized. If the investor is active on social media, you may want to engage with them there to build up some familiarity. Yuliya Belyayeva (Co-founder & CEO of Notus) created an excellent resource on cold outreach. Also ensure that your digital presence (LinkedIn profile, website, etc.) is consistent with the information you share via email (for more context, read this piece on what we look at online to decide to take a meeting).

When you meet someone, establish how they’d like to keep in touch. You could add them to your investor/community update list, you could agree to check in again in a few months, or you could make a note for yourself to send personalized updates. 

Prepare your materials

You’ve built a network of prospective investors, business is going great, and it’s almost time to raise. Before officially kicking off your process, prepare your deck and data room. Get feedback on these materials from existing investors, other founders, and trusted advisors. These materials will evolve as you gather feedback.

Run a process

Once you officially launch your raise, maintaining momentum is key. As much as possible, you want to move investors through the process in parallel. 

A common piece of advice is to first meet with your second- or third-choice VCs for practice; after all, you don’t want to blow your shot with your top choice. If this gives you peace of mind, go for it, but don’t overthink.

As you meet with investors, make sure to ask for feedback. What is their initial reaction? What are their hesitations or open questions? What are the next steps? Use this information to provide additional materials that may assuage any concerns, potentially adjust the pitch, and keep the process moving forward. 

When investors ask where you are in your process, be honest, but don’t divulge too much detail. If you are still in early meetings, you can say something like “We are in the middle of first meetings with potential investors. We’re expecting to go into due diligence over the next 2-4 weeks and are aiming to close the round before the end of next month.” As you move into due diligence and approach term sheet discussions, keep everyone in the loop and nudge them to see if they require additional information to move forward with their process.

Keep in mind that VCs know and talk to each other. Never overstate or misrepresent where you are in the process with another firm. Exaggerating urgency or setting arbitrary hard deadlines (“we are closing the round this Friday and need commitments by then”) can backfire as well. In order for the FOMO and momentum to work, you have to legitimately have enough irons in the fire. Finally, don’t be afraid to push investors to a “no”. 

Putting the pieces together

Here is an example of a potential timeline for this process, end to end:

  • March 1 - March 30: build a pipeline 

  • April 1 - July 30: establish familiarity and/or access

  • August 1 - August 30: prepare materials

  • September 1 - September 30: kick off the process and secure first meetings with all prospective investors 

  • September 15 - October 15: secure second meetings / enter due diligence processes with some investors (inevitably these will be some overlap between 1st meetings and 2nd meetings because of scheduling constraints)

  • October 15 - October 30: complete due diligence, confirm a lead investor, and sign a term sheet

  • November 1 - November 30: secure follow-on investors and close round

If you are gearing up for a raise, your pitch deck is likely the most important document to create. The last article in this series digs into this topic. If you have any thoughts / feedback, reach out via twitter (@geri_kirilova) or email (geri at laconia dot vc).

First-time Fundraising: Building a Compelling Deck

This is part 3 of a 3-part series on First-time Fundraising. You can read the overview of this series here. Here are part 1 and part 2. 

How do you create a compelling pitch deck? 

(Quick disclaimer: This blog post is geared toward software startups raising pre-seed and seed rounds from angels or VC investors. If you’re running a growth stage consumer hardware startup, YMMV!)

To start, what’s the goal of an investor pitch deck? 

(To be clear: we are not talking about a demo day deck; we’re talking about a deck that gets sent *to* investors and needs to stand alone without live narration.)

Decks have two goals:

  1. To land a meeting, and

  2. To increase investors’ conviction by providing critical information

You can spend months workshopping and obsessing over details, but if your deck is not helping you land meetings or close capital, either it’s not clear, or it’s not compelling. 

(Another quick aside: there are tons of reasons why you might struggle to raise a round, many of which are out of your control. But your deck is in your control, so it's worth nailing!)

You probably know the “table stakes” of decks: 10-20 slides covering the problem, solution, team, traction, market, size, etc. For the sake of completion and in no particular order, your deck should include the following:

Pitch deck slide Explanation
Positioning statement A snappy description of your company or product. Keep it under 10 words. Great positioning statements are concrete and memorable. Can be included on the title/cover slide.
Problem 1-2 sentences describing the problem you’re solving. Remember to express this problem from the POV of the customer feeling the pain. Avoid abstract generalizations.
Solution 1-2 sentences articulating your value proposition. Capture the benefit that you provide customers. This should correspond to the problem statement above.
Product description A description (and maybe a graphic) that answers the question “What exactly is the product?” Try not to get bogged down by minute feature details.
Competition / differentiation A presentation (often visual) of the competitive landscape, and a 1-2-sentence explanation of what your differentiated advantage is relative to others. Avoid feature-by-feature comparisons and instead focus on what you are doing that no one else is doing (and why your approach is better).
Business model A brief overview of your (current and/or future) revenue streams, explaining how you make money.
Go-to-market strategy An overview of your customer segment prioritization and approach to reaching customers. This should answer the question, “Who is your ideal customer, and how are you reaching them?”
Traction A few highlights on the market validation you’ve achieved to date. May include revenue, customer logos, users, engagement, or other validation of market demand. Wherever possible, use charts showing growth/improvement over time as opposed to only point-in-time metrics.
Fundraising plan + milestones The amount of money you are currently raising, the use of proceeds (i.e. what you will spend it on), and the milestones you will achieve with this raise (e.g. projected revenue targets, product milestones, assumptions validated). You may want to include financing history to date. If you do not yet have a lead investor with whom you’ve agreed upon terms, you do not have to include a desired valuation or cap.
Market size Ideally a bottoms-up calculation of the amount of revenue you could generate if you had 100% market share. This number won’t be precise; feel free to include other data that can serve as a proxy/approximation, validating that the market is large enough for your business to potentially reach $100M+ in ARR within the next 5-7 years.
Team An introduction to the founding & leadership team. Include names, LinkedIn profiles, and highlights of career accomplishments to date (particularly those relevant to your current startup). Photos optional.

Depending on your business and story, you may want to include a few additional slides:

Market timing / “Why now?” Some information regarding a market shift that is critical to understanding the opportunity you’ve identified (e.g. the adoption of a new technology; a regulatory change; a shift in culture or consumer preferences).
How it works A more detailed explanation of how the product works. Particularly relevant if the product is not intuitive, if the technology is novel, or if the use case is not obvious.
Mission / Vision statements An (inspiring) articulation of your “North star”. Particularly relevant if you are building a moonshot business that requires a big leap of faith on behalf of investors.

Most decks include these core elements. So where do they go wrong? Too many decks feel too much like a checklist, with no particular direction. Don’t forget that a deck is essentially an ad, and its goal is to intrigue. (I know, very dramatic for a PDF, but bear with me here!)

As mentioned earlier, a pitch deck needs to be as clear and compelling as possible. Said differently, a deck needs a clear narrative with strong momentum.

There are two elements to creating a clear narrative with strong momentum: substance (the information you are presenting) and style (the way you present it).

Let’s start with the first: substance. This is the story of your company. You need to decide what to include and what to leave out to craft the most intriguing possible story. 

In shaping this narrative arc, it can be helpful to write a paragraph about your company that effectively captures your one-minute elevator pitch. Each sentence of this paragraph should be able to serve as the main idea of a slide in your deck. Each of these slides will correspond to one of the "table stakes" elements above. The order of these slides will vary depending on what is most compelling about your business. 

If you’re not sure what to lead with, think through what the most exciting part of your business is. This may be traction (e.g. six months straight of 20% month-over-month growth) or the team (e.g. a diverse founding team with unmatched understanding of the customer pain point). Similarly, if you know that there are specific widespread objections that you’ll need to overcome (e.g. you’re in a very crowded space; there is an exceptionally high amount of previously failed attempts to solve the problem you’re tackling; you’re in the blood-testing business in a post-Theranos world), get ahead of the concern fairly early on in your narrative by articulating your competitive strength and differentiation.

Below are a few concrete examples of ways that founders have leveraged momentum in their narratives:

  • Highlighting a robust sales pipeline, suggesting visibility into upcoming revenue acceleration

  • Including a graph that ties impressive historical traction to exciting forward-looking projections (Note: this only works if your historical numbers have grown at an exciting clip, too; showing flat revenues for the past 6 months to date next to projections that next month you’ll start doubling every month won’t fly)

  • Referencing identified key hires, demonstrating that you’re in a strong position to execute once the round closes & that you are able to attract strong talent

  • Being profitable 😊 Profitability isn’t necessarily “momentum” in and of itself, but being in control of your company’s fate gives you leverage that can create the same FOMO that makes investors move faster

All in all, your story should start with a hook, provide additional context, and then lead the investor to forward-looking excitement. By the end, the investor should be thinking:

  • Hang on a second ...

  • They’ve figured something out

  • I don’t want to miss this

Now that you've figured out what your story will be, how do you actually display this in a pitch deck? This brings us to style. 

While aesthetically pleasing design doesn’t hurt, the main goal of the deck is clarity. The biggest issue with decks is not that they’re not pretty; it’s that they don’t make sense. Often, they either have too much text or not nearly enough. The clearest decks have one main idea per slide, and each main idea is clearly stated via 1-2 complete sentences. (This is worth emphasizing: please use complete sentences!)

If design isn’t your forte, I’d recommend the following format: 

  • Small tags identifying the slide type (e.g. “Problem”, “Solution”) 

  • 1-2 complete sentences stating the key point

  • These complete sentences, when pieced together across the entire deck, should create a comprehensible paragraph about your company

  • Supporting graphics/charts/images

If you’re looking for a good example, check out this one. It’s not exactly what I outlined above as it doesn’t have the little tags, but it’s pretty darn close. If you are interested in a more data-driven analysis of pitch decks, DocSend publishes interesting research on the topic.

Three final thoughts: 

  • You will likely tweak (or maybe entirely change) this story throughout your fundraising process as you gather feedback on what is and isn’t resonating with investors.

  • You can separate your pitch deck into a “main” section and an appendix. In other words, you can leave some of the “table stakes” slides out of the core narrative & include them later for reference.

  • If you’re debating whether you should send the deck in your initial outreach email or not, send it! Save us all the extra back-and-forth.

If you have any thoughts or questions, feel free to reach out to me via email at geri [at] laconia [dot] vc or on Twitter (@geri_kirilova). And, of course, if you are raising a pre-seed or seed round for a b2b software company, we are all ears via our pitch submission form 🙏

Chasing the Money: Making Capital a Strategy

Over the past 9 months, we have screened thousands of companies, had introductory meetings with about 200 founders, and conducted deep due diligence on about a dozen. Whether we’re doing a full dive into a company’s history, projections, and vision, or just having a quick chat about short-term goals, one topic that almost always comes up is the alignment of entrepreneurs’ operating strategy with a thoughtful and defined capital strategy.

We have been repeatedly surprised by how few entrepreneurs see capital as a strategic activity. Raising money for the vast majority of entrepreneurs we encounter (even some really excellent operators) is a glorified form of securing what may be referred to as allowance money. VCs are pseudo-parents, there for the asking in order to get cash in one’s pocket!

But, venture capital functions so very differently from merely being money in the bank. And trouble will brew if it’s not seen in its full utility.

The benefits of a sound capital strategy are numerous. For one, disciplined management of optimal cash resources allows founders to foresee operating pitfalls that may have otherwise gone unnoticed for months. This attention to strategy and capital needs provides founders with the tools to adapt and make adjustments in a timely manner. Beyond merely ensuring the survival of the company, a sound capital strategy maximizes a company’s leverage in subsequent financings. Planned and controlled runway is a strength that will be rewarded in higher valuations and dollars raised. A position of strength and operating integrity will be created through an optimal capital strategy.

While the benefits of an optimal capital strategy may be somewhat obvious, the mechanics of actually building it are less so. Let’s start with the numbers. Operating a startup is like navigating through a jungle Tarzan-style. The entrepreneur swings from one milestone vine to another in order to progress toward scale and sustainability. Swinging too far or not far enough is dangerous.

As such, clearly defined milestones must inform the raise amount. In nearly all cases, the amount of capital raised should lead to either the next round of financing or profitability within a given time frame. A raise amount should not merely allow for X months of runway. To determine this optimal round amount, build a financial model that granularly accounts for the drivers and variables of both revenue streams and costs, making sure to factor in some leeway/optionality. It is often helpful to have 2-3 different scenarios modeled with varying round amounts, hiring plans, and sales projections to truly understand what can be ramped up or slowed down. Use this information to raise optimal cash that tightly supports the execution vision in month-to-month detail.

After mastering these numbers, the next earnest consideration is the investment partners. Much has been written on the topic of choosing “value-add investors”, but the point remains: as hard, long, and disheartening as fundraising may be, putting in the sweat to secure VCs and strategic investors that contribute their networks and expertise to your company is immeasurably more worthwhile than settling for the low-hanging fruit of funding simply for the sake of moving on. Choose your partners wisely. Do your due diligence. As we always tell the founders we meet with, ask a VC’s portfolio companies what working with them is like, not just when things are going well but especially when they aren’t. A strong investor network, in combination with a solid Board of Directors (more on that in our next blog), can make or break a company.

In addition to the right partners and the right capital, founders also need to be mindful of capital structure itself. Some of the elements to keep in mind are below:

  •  Number of investors (both individuals and entities) -- having a cluttered cap table with dozens of investors can become a logistical nightmare regarding updates, information requests, and general communication. While the diversity of perspectives that comes with a varied investor base is valuable, there is an inflection point after which the utility of numbers begins to decline.

  •  Investment vehicles -- venture rounds can come in all shapes and permutations, with combinations of notes, SAFEs, preferred equity, common stock, etc. Though notes are often touted as being simpler to structure and execute, this is not necessarily true for early stage rounds; term sheets are quite vanilla and can be done comparably quickly and inexpensively. For everyone’s benefit, keep structure as simple as possible. Particularly avoid stacked notes with varying caps that reduce transparency for both founders and investors alike. Fred Wilson’s post on Convertible and Safe Notes adds additional color.

  •  Terms -- in line with the previous bullet, again, keep terms as simple as possible. Atypical preferences, ratchets, etc. have no place in early stage financings. Brad Feld’s timeless Term Sheet Series is a fantastic resource for those unsure of what to expect or avoid.

Often, we use a “clean cap table” as a proxy for a deliberate capital structure: if the above is done correctly, a neat cap table will reflect it. If prior financings were suboptimal and unnecessarily complex, a new round is the perfect time to reset the overall strategic direction, as a mess of a cap table is often a deterrent of future investment interest.

Finally, make sure that the capital strategy leaves the founders with enough skin in the game to want to play. Nothing makes us as investors more miserable than seeing founders crammed down into a miniscule amount of equity that will require nothing short of a miraculous exit for the venture to have been worth their while.

Applying strategic thought to capital, rather than treating it as a temporary, painful and necessary evil, will pay off in building a sustainable venture. With some luck, you may even find the ordeal rewarding.