Unlike corporate financing, which is a systematic process that has been studied and optimized so much, startup financing is much more grey in terms of right and wrong. Most startups need to have a high growth rate, focusing on a single product, and working under extreme uncertainty. These conditions of high risk call for outside financing to be the de facto method to get funds for startup, but how to get these funding?

First question to ask: How much money to get?

Well there are a few things you need to consider. It takes a lot of time to raise money, time that could be spent on making the real product (which is what you are supposed to do, yeah?), so try to raise enough to give you the needed runtime to develop the product, and to gain the traction needed to run the company. Yet, don’t raise too much, as this creates dilution (a.k.a you gonna have less money as the founder), and it’s hard to develop the financial discipline needed to create a sustainable business when you are swimming in cash.

No money is free money, so what can you give the investors?

Generally 3 types of things are given in exchange for funding: equity, debt, and convertible debt.

• Equity is basically the share of the company, e.g if you give them 20% share and you get acquired by Adobe, they get 20% of the acquisition sale.
• Debt is just normal lending money and getting interest, but this is rare for early stage startups because the risk vs reward is not worth it for investors.
• Convertible debt is just debt, but can be turned into equity along the way, and it’s mostly done when 2 sides can not agree on the share price of the company.

So how to get investors to invest in your amazing startup?

Well there are many types of investors, and none of them are the same, i.e. pitching the product to your rich uncle is very different from applying for a government grant. As cliche as it is, to get their money first you have to understand the motivation they have when investing:

• For some angel investors it’s simply just a pay-it-forward gesture
• For VC (Venture Capital) or hedge fund it is about the profit $$$.

Skipping the angel investor, because that’s on your people skills most of the time already, how to get funds from VC? (since that’s probably where most of the money is coming from).

VC Fund Raising

In a way it’s gonna be like a job interview: you pitch with their junior staff (aka HR), then pitch with the committee (aka big boss head engineer), then they assess the truthfulness of what you are saying( basically financial leetcode), then paperwork (try not to be legally screwed here) and MONEY. Same as for a job interview, they're gonna look for signals that you have the potential to succeed: having a cool team, having some unfair advantage, is in a hot market (and not competing with Google), and having good traction (basically know what you are doing).

This is not a one way process however, as picking investors is like picking a boy/girl/sthfriend: they also have to be a good fit for you as well. Hence, we might as well use the criteria for a good partner to evaluate our investor:

• They can help you make better decisions (through emotional knowledge support)
• Have no conflict of interest (they are not cheating on you with investing in other competing companies)
• Will be with you through good and bad times (yes we are still talking about startup financing).

As I said before, the startup financing scene is very hectic, estimation is hard and “guesstimation” will be more likely: trust your guts on whether the deal is good or not.

TLDR:

Startups need money --> you don't have money --> you ask investors for money --> they give you money -> you use money -> back to step 2

I have a love/hate relationship with finance now.