Raising Capital | Rounds | How to Classify Investors | Common Mistakes | Investors
<aside> 🔑 Equity is the new land. Shareholder is the new landowner - Naval
Founders have to be careful in how they divvy up this precious asset with co-founders, employees, advisors, and investors. A carefully constructed cap table can mean the world of a difference to the success of a company, much like the impact of decisions such as hiring, marketing, and strategy.
Decision to raise external capital is an important one. It means that you are willing to give up equity and control in return for capital and advice. These infusions of money and network into your startup can accelerate your chances of making a bigger impact to the world, if you wish to go down the path of attracting venture capital.
There are no recommended round sizes. As a leading indicator for how much you should raise, just treat it to be the amount you need to get to your next set of milestones comfortably. Then some more.
Planning a successful raise is like a startup following a promised roadmap — it will almost always never go according to plan. Once you start the process and get feedback as you speak to investors to assess interest — iterate from there. Results can lie anywhere in the full spectrum of a fundraising journey. Rounds can get subscribed in a matter of few meetings and have competing term sheets to sometimes the process taking a month or more to gather momentum to being completely disheartened by the process.
It's not always a fair process. It's not uncommon to hear of large pre-launch rounds for repeat founders and experienced operators, while some teams that lack credentials behind their great product or traction having difficulties raising.
An ideal round, beyond a certain size, should have an institutional investor doing a meaningful investment and leaving an allocation for value-add operator angels or micro-funds. This will ensure that you have investors who bring a diversified skillset to your cap table.
The lines are increasingly getting blurred, though broadly, you can classify the stages of a company's fundraising journey in these buckets:
Raising a successful round does not guarantee the next capital raise, but having the right participants — as you continue building a great business — definitely increases the chances.
Investors can help with a variety of things. The founder needs to build good judgement on how to ask for help and from whom.
Most helpful investors fall under one or more of these categories: