Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20
Does the Stock Market Really "See" the Future? - 12th Sept 20
Basel III and Gold, Silver and Platinum - 12th Sept 20
Tech Stocks FANG Index Nearing Critical Support – Could Breakout At Any Moment - 12th Sept 20
The Tech Stocks Quantum AI EXPLOSION is Coming! - 12th Sept 20
AMD Zen 3 Ryzen 4000 Questions Answered on Cores, Prices, Benchmarks and Threadripper Launch - 12th Sept 20
The Inflation Mega-trend is Going Hyper! - 11th Sep 20
Gold / Silver Ratio: Slowly I Toined… - 11th Sep 20
Stock Market Correction or Reversal? The Jury Isn't Out! - 11th Sep 20
Crude Oil – The Bearish Outlook Remains - 11th Sep 20
Crude Oil Breaks Lower – Sparking Fears Of Another Sub $30 Price Collapse - 11th Sep 20
Inflation by Fiat - 10th Sep 20
Unemployment Rate Drops. Will It Drag Gold Down? - 10th Sep 20
How Does The Global Economy Recover After This Global Pandemic? - 10th Sep 20
The Best Mobile Casino - 10th Sep 20
QE4EVER! - 9th Sep 20
AMD Ryzen Zen 3 4800x 10 Core 5ghz CPU, Cinebench Benchmark Scores (Est.) - 9th Sep 20
Stock Traders’ Dreams Come True – Big Technical Price Swings Pending on SP500 - 9th Sep 20
Should You Be Concerned About The Stock Market Big Downside Rotation? - 9th Sep 20
Options Traders Keep "Opting" for Even Higher Stock Market Prices - 8th Sep 20
Gold Stocks in Correction Mode - 8th Sep 20
The law of long-term time preference and Gold ownership - 8th Sep 20
Gold Bull Markets: History and Prospects Ahead - 8th Sep 20
Sheffield City Centre Coronavirus Shopping Opera Ahead of Second Covid-19 Peak - 8th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

How Startup Fundraising Works

Companies / SME Dec 17, 2019 - 05:02 PM GMT

By: Sumeet_Manhas


How does startup fundraising and getting funded really work for startups?

Throw together a pitch deck, run around Silicon Valley showing it off to investors, and rest easy on the weekend with a pile of checks and plenty of commas in your bank account, right? Not exactly. There is typically a lot more involved in fundraising than you see on the surface.

Where The Money Comes From

When most entrepreneurs think about fundraising they are initially thinking about getting that big VC money.

In reality, there are several stages of fundraising. VCs normally isn’t an option until a little later in the game.

Most likely you’ll be first raising your early startup capital from friends and family. Then individual angel investors. Maybe angel groups and crowdfunding platforms.

There may be a variety of other investors later on too. Like strategic corporate investors and private equity firms.

The VC Funding Cycle

It’s helpful to understand how venture capital works. This enables you to put yourself in their shoes and understand what’s driving them. It will prepare you to be positioned to really connect and move smoothly.

Venture capital firms are operated by the General Partners. These are the active investors in the organization. As an entrepreneur, you’ll probably be dealing with an individual partner who is your direct connection to the money. This person is more important than the company name itself. Understand what they are looking for, and how you can help them.

The VC fund is also made up of Limited Partners. These are the passive investors who give their capital to the fund to invest. They may include wealthy individuals, other funds, and family offices. They are looking for strong returns from their pooled money, within a set time frame.

When startup investments are successful, VCs pay back their investors, make a profit, and raise new funds to repeat the cycle.

Get Money, Give Equity

There are many better reasons to raise money for your startup than just the money. When you do raise equity capital, you are giving up a piece of your company. Your investors now hold stock in your company. Exactly how much you can expect to give up varies by round. The earlier the round, the higher the risk for investors, and the larger the piece of the pie they are going to want for less money. In later rounds, they’ll get less of a percentage for more money.

With this in mind many experienced entrepreneurs like to start by bootstrapping, and then raise money when they are in a stronger position. Of course, this isn’t possible for every type of venture.

It is important to understand how dilution works. Plenty of founders have found themselves walking away with very little, even after their startup goes public at over $1B. It’s a balance between having a smaller piece of a much larger company, or a large piece of a much smaller company. Remember, if you can’t make it on your own, then 100% of nothing is still nothing. In contrast holding, just 10% of a $100M company can put $10M in your pocket.

5 Rounds

Each and every time you go at fundraising it can be consuming. It seems like closing this round is all the matters in the world. Yet, once you start you’ll be raising round after round until you say goodbye.

There will typically be a Pre-Seed, Seed, Series A, B and C round. Some will engage in even more rounds.

The point is not to believe you just have to make it through this round you’ll have it made. Like walking into a boxing match, you have to be prepared to go the distance through all of the rounds. Each one can feel like a fight for your life, with very little breathing time in between. If you’re lucky, you will have a great team in your corner who will get you through.

This fundraising training course can help.

Burn Rate & Runway

Even raising millions of dollars isn’t going to set you and your company up for life. It gives you just enough oxygen to sprint all out to the next milestone and close another round of funding.

How fast you’ll need to close your next round will be determined by your burn rate. This is how much cash you are burning through every month. If you’re spending $100k a month on expenses, that’s your monthly burn rate.

If you have $1M in the bank, then you have 10 months of runway. If you don’t close that next round within 10 months, you aren’t going to be able to make payroll and keep the lights on. In this scenario, you already need to be actively fundraising for your next round in order to close on time and get the funds in the bank.

Board Seats & Decision Making

Taking VC money in your startup fundraising efforts is going to mean giving up board seats as part of your board of directors structure. It means giving up a lot of voting rights.

If you’ve chosen incredible investors, they will be there to back you and advice and help you. They’ll still let you make most of the decisions.

Of course, while these board members are there to make your startup a wild success, they also have their own obligations and timelines. Their main concern is really to make this grow big fast and cash out. That way they can repay their own limited partner investors.

Where the friction usually comes in is that they may have to pay back their investors in just five years. That may sound like a lifetime away right now, it means a lot of pressure. Problems arise when they want to force decisions for short term indicators, even in the long term expense of your customers and company.

Be very careful that you are aligned on mission and timelines before getting into the relationship.

If you do this, you’ll sail toward an exit that will best equip your startup’s mission to succeed.

Then with full-cycle experience under your belt, you’ll find it easier to raise money, bootstrap or self-fund your next venture, and attract talent. Plus, you’ll know what mistakes not to repeat again.


Alejandro Cremades is a serial entrepreneur and the author of The Art of Startup Fundraising. With a foreword by ‘Shark Tank‘ star Barbara Corcoran, and published by John Wiley & Sons, the book was named one of the best books for entrepreneurs. The book offers a step-by-step guide to today‘s way of raising money for entrepreneurs.

Most recently, Alejandro built and exited CoFoundersLab which is one of the largest communities of founders online.

Prior to CoFoundersLab, Alejandro worked as a lawyer at King & Spalding where he was involved in one of the biggest investment arbitration cases in history ($113 billion at stake).

Alejandro is an active speaker and has given guest lectures at the Wharton School of Business, Columbia Business School, and at NYU Stern School of Business.

Alejandro has been involved with the JOBS Act since inception and was invited to the White House and the US House of Representatives to provide his stands on the new regulatory changes concerning fundraising online.

© 2019 Copyright Sumeet Manhas - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules