Fundraising

The money it takes to build a product goes out long before that product brings any in. Five engineers spending a year on something worth shipping cost several hundred thousand dollars in salary alone, and revenue over that year is zero. Without money from outside, there is no way to survive those twelve months.

The old answer was borrowing. You take a loan from a bank, pay interest, and work the principal down. That answer is shaped around companies with something to seize — a factory, a building — and last year's revenue printed on a statement. A software company has neither. Its sellable assets are a few laptops and code nobody uses yet, and the revenue record is blank.

So the same scene kept repeating. Grace sits down at a bank counter with a business plan, says "we have no revenue yet," and the conversation is over. The officer has not decided the business is bad; there is no material with which to judge whether it can repay, so no judgment gets made at all. Companies that could not find money stopped before the product was finished, and nobody ever found out whether the ones that stopped could have built something good.

The way out was a trade that replaces a promise to repay with a slice of the company. Whoever puts the money in takes equity instead of principal and interest, and if the company does well the value of that equity climbs and returns several times what went in. If it fails, they get nothing. People accept that risk because they never put it all in one place: spread across ten companies, nine can disappear and one turning into thirty times its cost still leaves the whole ahead. As the structure hardened, rules formed on the receiving side too. How much to take, what percentage goes out in exchange, which document records what — all of it settled into named stages.

The reason the wider finance field keeps this as its own branch is the calendar. Four months from the first meeting to money in the bank is normal, so starting with two months of cash left turns the conversation from a negotiation into a rescue request. That is the line between a company that can pick its terms and one that takes what it is handed.

The terms under fundraising fall into four groups: when you take money and how much (rounds), who supplies it (investors), the order events happen in (process), and what instrument carries the deal (vehicles). Rounds are the time axis; the other three attach at any point along it.

Rounds are the names given to financing according to how grown the company is. There are six. The first four sit in order, and the last two describe departures from that order.

1. Pre-seed — the first money, taken when nothing exists but an idea and two or three people. There is no product to show, so the only basis for judgment is the team and the problem statement, and amounts stay small, often under a hundred thousand dollars. The goal is not growth but reaching a state where building is possible.
2. Seed round — taken to build the product and find out whether anyone wants it. A few hundred thousand to a few million is typical, and what the money actually buys is twelve to eighteen months of time. The question this stretch has to answer is not how much revenue arrived but whether people use the thing.
3. Series A — taken once a way of making money has been confirmed, in order to scale it. Numbers become the main argument here. How much revenue repeats every month, how fast that figure is climbing, how many months it takes to earn back what was spent acquiring a customer — those values sit at the center of the review.
4. Series B — money for running a confirmed model much harder. Tripling the sales team, opening a new country: fuel poured into a machine that already works. Amounts climb into the tens of millions and the review period stretches with them.
5. Bridge round — interim money wedged between two regular rounds. It gets used when the numbers are a couple of months short of a Series A but the bank balance runs out first. Existing investors often supply it, and the structure usually avoids repricing the company so that negotiation time stays short.
6. Down round — an investment taken at a lower price than the last one. A company valued at thirty million raises at eighteen million instead. Existing shareholders get diluted hard and the signal it sends inside and outside the company is bad, but it beats closing the doors.

Round names are industry convention, not law. The same three million gets called a seed at one company and a Series A at another. Reading what a round proved is more accurate than reading its label. Every round drags a pricing exercise behind it, and that price decides what percentage leaves the founders' hands. On the same one million, valuing the company at four million sends out twenty percent; valuing it at nine million sends out ten.

Investors sort the supply side, and there are five slots. The dividing lines are whose money it is and when it arrives. Venture capital firms invest pooled money into early companies, and they are the counterparty you meet most often from seed through Series B and beyond. Angel investors are individuals investing their own money; decisions come fast, amounts are small, and pre-seed is where you mostly meet them. Accelerators pair a small investment with a program of a few months, and teams often join for the advice and introductions attached to that window rather than the cash.

The remaining two describe the machinery inside a venture firm. Limited partners are the ones supplying money to the fund, and general partners take that money and do the investing. A pension fund or a bank commits a hundred million and the general partners spread it across roughly thirty companies. Knowing the structure explains behavior you would otherwise find strange. A fund has a fixed life, usually eight to ten years, inside which it must invest, exit, and return money — so a partner late in a fund's life avoids companies whose payoff is far away. The same company with the same terms gets a different answer depending on what year the fund is in.

Process sorts the sequence from first meeting to money landing, and there are three steps, in order. First comes the investor deck, ten or so slides stating what problem the company is solving and how far along it is; it is the key that opens first meetings. Next is the term sheet, a two-page summary of how much gets invested on what terms. Most of its clauses are not legally binding, and it still sets the skeleton of the final contract. Last is due diligence, the investor pulling the company apart after the term sheet: financial records, contracts, the ownership structure, the engineering organization. Three weeks at the fastest, two months at the slowest.

Lay the three steps end to end and it becomes clear why fundraising is a four-month job. Two weeks to build the materials, a month of meetings to find real interest, two weeks negotiating the term sheet, six weeks of diligence and final contracts. Salaries keep going out the whole time. That is where the advice to start once the balance drops under six months of runway comes from.

Vehicles sort what actually carries the money and the ownership, and there are two. The dividing line is whether the company gets priced now or later. A SAFE takes money without setting a price, converting into equity at whatever price the next priced round sets. The paperwork is thin and there is little to negotiate, which is why early companies lean on it. A convertible note is formally a loan, so it carries interest and a maturity date, but when the next round arrives the holder can take equity instead of cash back. Both defer the pricing question, and because a deferred question gets settled all at once later, stacking several of them means founders lose more of the company at the next round than they expected.

The four groups run in a line. What stage the company is in names the round, the stage picks which investors are plausible counterparties, the process turns conversations with them into documents, and the vehicle decides what form the agreement finally takes.

"Five months of runway left. Starting now is too late — let's look at a bridge first."

Running a full round takes three or four months, so the proposal is to secure interim money that covers that stretch.

"We have the term sheet, but the cap table is going to be a problem in diligence."

Terms are agreed, but the ownership records are not clean enough to survive the next step.

"Let's take a lower valuation this time and close quickly."

Choosing continuity of funding over a higher price on the company.

Pagedeck closed its Series A last year. Grace first sent the deck out with nine months of cash left, and the money actually arrived five months later. In between she met twenty-eight firms, got real interest from four, and received written terms from two.

What dragged at the end was paperwork, not numbers. Diligence turned up three early contracts whose terms contradicted each other, and straightening them out cost another three weeks. Mia cut her product meetings in half for that stretch and worked on the records instead. The rule Grace left behind inside the company came out of it: contracts and ownership documents get tidied once a quarter. The point is not losing the same three weeks in the next round.

The most common misreading is treating a raise as an accomplishment. The news covers the amount, congratulations circulate, and it looks like a result. But money that came in is not money the company earned; it is closer to an expectation that has to be repaid in performance. Ten million raised means an investor believes this company can eventually be worth a hundred million or more, and falling short of that means the next round comes at a cut price or does not come at all. Teams that treat the raise itself as the goal tend to lose direction right after closing. The burn rate triples while what they need to prove stays exactly the same, and twelve months go by.

The belief that a higher valuation is always better also tends not to hold. Less ownership leaves the building for the same money, which is a real gain in the moment. The problem is that the number becomes the starting line for the next round. Raise a seed at fifty million and the next round has to clear a hundred and fifty million to look like normal progress, which means revenue has to multiply three or four times. Miss it and the remaining choices are a lower price or no money at all. A lower price dilutes existing shareholders hard and drags down the value of the stock given to employees, which is how people start leaving. A price slightly ahead of what the company can currently show makes the following twelve months easiest.