Fundraising and investor relations
Capital is bought, not received, and the terms matter more than the headline number. So does what happens for the years afterward, which is where most of the relationship actually lives.
Financing terms have legal and tax consequences that vary by structure and jurisdiction. Get qualified counsel and your accountant on any instrument before signing.
Decide the amount from the plan, not from the market
Raise against what the money buys: the milestones that will make the next raise possible, plus enough runway to reach them and to be wrong once. Working back from milestones gives a number you can defend and a story that connects the raise to the outcome.
Raising more than the plan needs is not free — it costs dilution now and sets a valuation you have to grow into. Raising too little is worse, because running out mid-plan is the weakest possible negotiating position and everyone on the other side of the table knows it.
Understand what the terms cost, because valuation is the least of them
A high valuation with punishing terms is worse than a lower one with clean terms, and founders routinely trade the second for the first because only the first is quotable.
- Liquidation preference determines who gets paid first and how much before common shares see anything. A participating preference or a multiple can mean an apparently good exit returns little to founders and staff.
- Anti-dilution decides what happens if the next round is lower. The broader forms can shift ownership substantially in exactly the circumstances where you can least afford it.
- Board composition and protective provisions determine what you can do without asking. This is control, and it is permanent in a way valuation is not.
- Option pool sizing placed before the investment dilutes existing holders only. Where the pool sits in the calculation is a real price negotiation dressed as an administrative detail.
Model the outcome at several exit values, not just the good one. The terms that matter most only express themselves in the mediocre cases, which are the most likely ones.
Run a process, because tension is what produces terms
A raise conducted sequentially with one interested party is a negotiation with one side. Run conversations in parallel on a compressed timeline so that decisions land close together.
Prepare before starting. A process that stalls while you assemble materials loses its momentum, and momentum is most of what you are manufacturing.
Assemble diligence before you need it
Cap table and every instrument that affects it, signed contracts, employment and contractor agreements with their IP assignments, financial statements and the model behind them, key metrics with their definitions, and the corporate record.
Diligence surfaces the things nobody dealt with earlier — a missing assignment from a contractor, an unsigned amendment, a metric defined differently in two places. Each is small alone and each costs time at the worst moment. Fix them before the process, not during it.
Never present a metric to investors that is defined differently from how you report it internally. That inconsistency is found, and it costs credibility disproportionately.
Report on a rhythm, and report the bad news first
Investor relationships are managed between raises. A regular update — monthly or quarterly, short, consistent in format — costs an hour and buys enormous latitude when something goes wrong.
Surprise is the thing that damages the relationship, not bad results. An investor told early about a problem is a resource; the same investor told late is a governance issue. Lead with what is not working, what you are doing, and what you need.
Ask for specific help. "Let us know if you can help" produces nothing; a named introduction or a specific question produces something.
The board is a different audience from investors
Board material goes out days ahead and is read before the meeting, so the meeting is for decisions rather than presentation. Bring the real questions, including the ones you do not have answers to — a board only shown finished thinking cannot help with anything and eventually stops trying.
Sources
references/sources.md in this skill lists the outside authorities that settle the questions
here — what each one is authoritative for, and what you may do with it. Check them before
answering on anything they cover, and cite what you used. Most are free to read and not free
to reproduce; the use note on each is binding.
Never
- Optimize a term sheet on valuation without modeling the preference stack at mediocre exits.
- Start a process before the data room would survive being opened.
- Present a metric to investors under a definition you do not use internally.
- Let an investor learn about a material problem after it is already resolved or already worse.
