Startup Funding Mechanics: Incorporation, Convertible Debt & Series A

What do first time founders need to know about fundraising mechanics? This post should help you understand the basic lingo of fundraising – so you don’t look surprised or sound like a noob when you’re discussing funding. An attorney will go into a lot more detail and it’s important that you understand investor motivations – not all capital is green.

Please keep in mind, this is a founder’s view, I am not a lawyer – this isn’t legal advice. There are always exceptions to every rule. Especially in legal where optionality creates billable hours. Ask about costs with lawyers in advance.

Starting at Incorporation

Let’s start with incorporation. Who owns what percentage and what is a common number of Issued and Granted share and how do Stock Options play into the equation.

When you incorporate, you will Authorize (Authorized) Shares and Issue (Issued) Shares. Authorized is the total number of shares the company many issue over the lifespan of the company without changing its Charter with the State (incorporating entity). Typically this is a large number of shares so you don’t have to go back to your state or government agency to issue additional shares at a later date. Your corporate Bylaws and Charter will dictate how you can access these additional shares.

Issued shares include the number of shares for founders at the time of incorporation, the Stock Option Pool – usually 10-20 percent depending on if early employees get a grant or an option. As well as preferred shares that you anticipate selling in the early rounds of funding.

For example, if you wanted to increase your stock option pool, it would require documentation and a vote of the Board and perhaps shareholders. There are two types of shares at formation:

  • Common – the most basic of the shares
    • These shares are granted to founders and early employees at the time of incorporation or held in reserve
    • The 6,000,000 shares, in this example, would be divided between the founders – see Awkward Co-Founder discussions for more on that topic
  • Preferred – as implied, these shares will have a preference of some kind – but the preferences will be determined later. The preferences will change with each Series – or round of funding and generally grow in complexity with preferences, see below
    • These are the type of shares sold to investors
    • The specific preferences can change with each round of funding

When you incorporate your company the value or basis of the stock is (hopefully) the least it will ever be. At that point in time, you are granting Issued shares to the founders. This grant is in exchange for an Assignment Agreement and anticipated work to be contributed to the organization.

This is usually calculated in the fractions of pennies – so 3,100,000 shares may reflect a cash contribution of $3,100. This is likely the cash you and your partner(s) will be contributing to pay the legal fees or other costs associated with the early project work. This creates a basis for your stock price – when you sell it later, it reflects the cost you have in the stock. Think:

Total Sale – Basis = Taxable Income

Your Attorney Represents the Company

Not the founder. If you want someone to represent you and your founder team, you’ll need to pay them outside of the company funds.

The attorney also doesn’t represent the investor – but they may try to cozy up to them. In one of my startups we had a big name investor (I won’t name drop here) and our attorney decided that he might get more business by helping out the investor. This is not “good form” and professionals should know better. We ended up letting that attorney go and finding another one in the process.

Board Members also represent the interest of all shareholders – it’s called fiduciary duty. They will be required to vote their shares – especially if you have a class of shares to vote. However, they need to represent the best interest of the business. More on this topic in another post.

You’re now incorporated, you’ve established your basis for the stock. In the US you’ll need to file an 83B election.

Stock Options

Stock Options – are the shares held by the early team members or contractors. These are typically Incentive Stock Options (ISO) or Non Qualified Stock Options (NSO). ISO’s have favorable tax treatment of Capital Gains vs Regular Income (more in Joe Wallin’s blog). They are shares granted at the time of employment or generally the next Board meeting.

  • Strike Price – this is the price the shares are granted at the time, at incorporation, it’s likely $0.01 per share. As a later option it will be closer to the fair market value – for more details see Fair Market Value of a Startup. Keep in mind they can’t be granted at a cheaper rate than Fair Market Value without creating a taxable event. The price is the same price for everyone you grant options at that time.
  • Vesting Schedule – is the term in years that the shares will vest. Usually three or four years, it can be monthly or quarterly. Let’s use the example of a four year schedule with a one year cliff. Cliff Vesting – usually the first 12 months is the initial vesting schedule.
    • 60,000 Share Grant example
    • Strike Price of $0.10 a share
    • 365 Days =  15,000 shares vested
    • 45,000/36 remaining months = 1,250 shares vested per month
  • Reverse Vesting Schedule – for a founder, when you are granted shares at incorporation you own the shares, however, you may be asked to reverse vest those shares. The reason is simple, let’s say you own 35 percent of the company and you decide at month 13 that you want to go do something else with your life – things happen. If it was similar terms as above

 Original Shares


25% for year 1



2.7778% (or 1/36)



 Total Founder Shares at Exit


This leaves 2.26M shares available for the company to use to hire your replacement or replacements over time. Think of this as a “must be present to win” tax. Remember, as much as you might think you are “owed” these shares as a founder, the market recognizes you have to keep contributing as an employee to keep the stock.

Convertible Debt

A convertible debt is a debt instrument used to put money into a company without having to put a price on the value of the company and the corresponding value of the shares. This funding mechanic is good for startups in a number of ways. First, you think your idea is more valuable than it really is, all of us do, so you don’t have to price the stock lower than you would like.

Second, the legal costs associated with this type of financing should be the cheapest option for your startup.

  • Convertible Debt
    • Amount – of the individual and as a total
    • Term – accrued interest over what timeline
    • Rate – usually in the 6-8 percent range 
    • Conversion at Qualified Financing – this stipulates reason for converting and the minimum amount to be raised – this would include accrued interest from the early investors
    • Cap – a cap is the reason a investor is interested in this financing mechanic. In the case of Techstars, it converts at either the lessor amount of the financing or the “Cap”. For example, the cap may be $4M. If you raise a $1M at $5M pre-money, the original investors are effectively in the money from their original investment – though they can’t sell the stock at this point.

Debt is “first in line” to get paid if the company was to fail and you have to sell the assets (assuming there was value). What that means is that if you have IP that you can sell for $100k and you have $1M in convertible debt holders they would get a pro-rata % of that sale before shareholders – like founders – would get paid anything.

Keep in mind, these early investors are taking the most risk at this stage of your company and most don’t want to simply get paid back their principal and interest. They are looking to actually own the stock.

Selling Stock – Preferred Shares

Preferred Stock sales is a priced round of capital to be sold. Generally it “stands in front” of common stock until a company goes public, at that time all of the stock generally is the same – all common. Their are exceptions, like the Killer B stock, but in general an IPO converts all stock to common. The size of each of these Series depends on your location, e.g. the Valley has bigger funding rounds than Iowa City.

Keep in mind, when you sell new shares of stock in the company you are not selling your shares, you are taking shares from the Issued Preferred Shares. This will cause overall dilution to all shareholders, but the cash will go to the company and not to the founder.

  • Series Seed – Series Seed documents are an open sourced set of documents designed to be both company and investor friendly. The goal of Series Seed is designed as a template your lawyer can use to keep the documents cheap – you don’t want $30k to go to the lawyers for a $250k round of funding.
  • Series A – the terms of a Series A round of funding is set by the lead investor. It’s a negotiation, but you’re not completely in control of the process unless you are killing it on your forecast to actuals numbers and have multiple investors that want to lead the round. Having competitors always matters in getting the best Term Sheet.
  • Participating Preferred Shares – this means that they investor will get their money back and then participate like the common shareholder.
  • Series A Extension – extending the previous round and fundamentally the same terms.
  • Series B – simply comes after the series A, can include a range of different terms

A Few Other Provisions

Here are a few other legal terms you’ll see on term sheets

  • Pro-rata participation – this is a provision that allows the investor to keep their pro-rate percentage in future rounds. If they invested and have a 5% share, they have the right to keep that 5% share if they continue to invest in the up rounds
  • Down Rounds – Cram Down Rounds – if you missed your numbers and are running out of cash, but your investors believe in what you are doing you may be faced with either a down round or a cram down round.
    • Down round is simply a pre-money price that is lower than the post money price of your last round – your company has effectively gone down in value
    • Cram Down is where an investor forces other investors to participate or effectively crams down their percentage of ownership.
  • Drag Along/Tag Along  is a provision that allows and protects majority shareholders to pull along a minority shareholder, specifically at the time of a sale.

Questions about fundraising? Use the comment function below.

This was originally published here

Ask Techstars: Going from Seed to Series A

We recently held an AMA on the topic of fundraising, what investors look for in a business and team, moving to the next round and more (Ask Techstars: Going from Seed to Series A) with Ari Newman, Partner at Techstars; Bryan Birsic, CEO of Wunder Capital (Boulder ‘14); and Bora Celik, Founder of Jukely (NYC ‘13), a 2-tap concert concierge.

This post is the first in a series with Q&A excerpts from this AMA. Check it out!

What is considered “Seed” to “Series A” these days?

Ari: It varies widely. It’s a very difficult question to answer. It has more to do with where the company is at that stage than the dollar amount as a seed round can vary from 500K to 4 million these days.

The Seed round in today’s market is really about giving the company the capital it needs to take some early traction and early feedback from the market and prove that it can be operationalized and that they have true product-market-fit and enough learning to then be ready for scale of capital.

Of course, $4M is considered Series A territory but the scope and scale of a company raising a seed round of this size would signal a huge opportunity that’s been validated.

For the entrepreneur, an important thing to understand is, regardless of how much money you can attract from the market, when you go out and raise a Seed round, you have to make that money work to get to the next set of proof points.

What I see, consistently, very few companies raise a Series A after a Seed. There’s always another Seed. Or there’s a bridge on top of the second Seed. Or some other financing in between.

Entrepreneurs, by nature, are optimistic people. We all want to believe that we are going to hit our schedules, we are going to hit our milestones, but although it’s easier to start companies today, (infrastructure costs less, there’s capital around the system, you can hire a global workforce, etc.) the amount of data and proof around product market fit and unit economics and the company’s place in the world, (in terms of becoming an ongoing concern), that hurdle continues to get higher.

What I see very consistently is second Seed rounds. Financing is not a dot, it is a line and it is part of your job as a founder and a business leader to keep the capital coming in. If it was a world with just Seed, then Series A and then Series B, it would make everyone’s life easier. 

The reality is, you can’t always control the things that you can’t control.

Bryan: My co-founders and I got into the entrepreneurial scene and started our first two companies in NYC – we were used to those kind of norms and how people talked about these type of things (Seed, Series A, etc.). We moved to Boulder and were looking to raise what serial entrepreneurs in New York would find as a very reasonable first round with basically the angel round at $500K or $1M.

We had some weird cross-cultural miscommunication with investors here who thought, “who do these guys think they are raising $1M?” The size of that round was not seen as an appropriate amount based on where we were.

If I go to the Valley, and say we have a $3.6M Series A, they think I’m a noob and I don’t know what I’m talking about. That’s a big Seed round. In NYC I can describe it as a small Series A, in the Colorado area it’s a very solid Series A. Understanding that when you are talking to those markets and how people are going to bucket you is really helpful to just not come off oddly.

We even had different decks for different people in terms of what we were raising. Sometimes they won’t take a meeting with you in the Valley unless you’re raising at least $2M. If you take that same deck to a local investor in Colorado, they are going to think you are really capital intensive or don’t know what you are doing. So, it’s really worth knowing the markets you’re pitching.

Ari: That’s very good advice, and I think in general that’s a good point for folks to remember, which is know your audience.

If you’re talking to a $50M Seed fund, you have to ask them what their normal bite size is. If what you are raising is in a strike zone where their normal bite size will buy them a reasonable amount of the company, that’s the first proof point that you could potentially work together.

So knowing your audience and also being realistic about valuation based on the market you’re in are two important things as well.

Bryan: On that point, I think entrepreneurs are often scared to ask investors questions because of the power dynamic. Ask where they are in their fund, how much they have left, what are their follow on dynamics? That’s an important question people don’t ask a lot.

Those are things that will put you on more even footing, make you look more sophisticated and give you information you need.

Ari: Back to a dating analogy, it’s no different than, do you want kids? Do you not want kids? Are you an athlete or do you sit on the couch? If you got two incompatible dynamics between the investor and the company, ultimately the deal is not going to happen anyway.

Bora: For me in the beginning, and I think a lot of entrepreneurs do this, they actually feel this illusion of the power dynamics, where, “I need money, they have the money, so they have the upperhand.” Everyone I know, including myself, started this way coming out of Techstars.

One of the things I learned along the way, which changed a lot for us, is that it’s actually not really like that.

What is on the other side of the table is money (and a lot of people have money), but on this side of the table is something that is very unique, and that is the entrepreneur and the company, and there’s only one of me.

Ari understands both sides of the equation. I think that is one of the very important things that an entrepreneur that is fundraising needs to believe in. That power dynamic isn’t like that, it’s an illusion.

Ari: I think it is a tough headspace for an entrepreneur to be in. When you walk into the room feeling like you have the upperhand when, quite frankly, a lot of the venture community and the venture apparatus is set up to scare the shit out of you.

For those who have actually pitched on Sand Hill Road, you go into this huge building, the receptionist walks you into a huge oak gilded conference room, the partner walks in 20 minutes late, they tell you absolutely nothing about themselves or their fund, they ask you a million questions, and then they say thanks, super interesting, I’ll chat with you soon. You walk out of there wondering what the hell just happened.

That was the power dynamic I was talking about. What Bora is talking about is flipping that idea on its head and being the person that says hey, I got something special and unique and if you want to work with me for the next decade, let’s figure out if we are going to be able to connect and have a relationship.

There are a lot of investors out there, and just because someone else gave that investor a checkbook does not make them either a genius or a person for you to be spending the next decade working with.

Click here to listen to a replay of this AMA.

A Guide to Prepare Your Series A Fundraising

The following is based on a sort of “internal guide” that I frequently share with portfolio companies I am involved with. It is a collection of various sources of information and best practices that should help the founders to prepare for their Series A fundraising.

It is most applicable to companies and their (first time) founders in Europe that have previously raised some (small) seed money from Angels or Micro VC funds such as ourselves, Point Nine Capital. That said, it contains various general notes that could help you in any fundraising situation.

Please note that it describes the ideal scenario which hardly any company reaches, so you might deviate from it in one or more points. As usual, the exception proves the rule.

The post is structured in three parts:

  1. Preliminary remarks regarding prerequisites (to raising a Series A)
  2. Input and inspiration for fundraising material
  3. Description of how the (ideal) fundraising process could look like


1. Make sure you are on track to generate 80 – 100K EUR/USD per month in net revenue by the time you go out on the market to start raising your A round. Certainly, do not start fundraising before hitting 1M EUR/USD in annual (net) revenue run rate.

In case you are not (yet) monetizing your product, lack of revenues might be compensated by exponential growth of active users which, usually, can only be achieved by some sort of virality (likely the case when Zenly snatched up over 22m USD from Benchmark Capital or, when Brainly raised its 9M USD Series A). Note that all following points are geared towards revenue generating companies.

2. Ideally, you are on track to grow 3x YoY (on a year-to-date and/or month-over-month basis, for instance, March 2017 is approximately 3x March 2016) on the most relevant KPIs like GMV, net revenue and/or bookings (also see this simple “compound growth calculator” template). Don’t forget, this translates into an average growth of approximately +10% month-over-month for 12 consecutive months!

3. As a rule of thumb, the faster and the more consistent (read: predictable) you grow, the higher the “multiple” on your monthly (net) revenues and/or yearly revenue run rate (as well as GMV for any marketplace business) and thus the higher your potential (pre-money) valuation for your Series A.

4. The basis for #1 to #3 above should be, of course, healthy unit economics (CACs vs. CLTV or CAC vs. net revenue per booking). Investors won’t honor unsustainable, expensive revenue growth.

5. Make sure to nail the explanation of market size. Define the total addressable market as well as the opportunity and find as much backup information (official, up to date research papers etc.) about it and do your own well-founded bottom up calculation to be able to support your reasoning (in your pitch deck; more on that below).

6. Have a financial plan ready on a monthly basis for the next 18–24 months that defines how much money you need for what. It should also include monthly actuals (which are even more important to investors than the outlook).

You can use your existing KPI dashboard and also use it to forecast the next 24 months (forecasting cost, your burn rate, is especially important). There are various templates for KPI dashboards for different business models. There’s a comprehensive KPI dashboard for SaaS and for marketplace businesses from yours truly or this marketplace KPI dashboard template from our friends over at VersionOne (great job Angela Tran Kingyens!) as well as this version from Willy of French Daphni.

7. Please also consider our SaaS and Marketplace Fundraising Frameworks to benchmark your stage vs. your Series A plans and prepare yourself for your fundraising.

Fundraising Material


1. Use this comprehensive list of European Investors from Techstars to compile a shortlist of approximately 50 suitable investors.

2. Use this template for a shortlist. There are many different versions out there: You may also try this version from our friend Jean from Kima.

Rank the investors based on “quality” and perceived “fit” to your case as follows (and yes, you should get familiar with what the different investors are up to):

A = Dream Partner*
B = Nice but not the best fit
C = Could serve as a back up and/or to fill up a round (e.g. when they do smaller tickets, cannot be a lead etc.)

Dream Partner does not necessarily mean the investor who pays the highest price; the optimal outcome is to maximize and balance several variables at a time: 1) the price an investor is willing to pay, 2) the qualityand brand of said investor (what can she or he bring to the table other than the $$$?) and 3) the time it takes to get firm commitments and close the round.

3. “Priority”, as mentioned in the shortlist template (#2), means in which chronological order you approach the investors. You want to make sure that the amount of outstanding feedback is never higher than 10–20 because:

a) anything above that is hard to handle;

b) you won’t be able to provide a good experience to your prospective investors;

c) you do not want to blindly fire a “shotgun shot” into the dark and leave the impression that you approached ANY possible investors out there – remember that fundraising is like dating, potential investors want to feel “special”;

d) you shouldn’t approach your “dream partners” at first because you want to gather feedback from “B candidates” before approaching potential “A candidates”. That way, you can still work on your pitch to refine the presentation and storyline if necessary (…and I’m very well aware of the fact that this advice is not going to make me very popular among later stage VCs). 😉

Pitch Deck

1. For the pitch deck preparation: Nail the story and content of the slides first, then take care of design afterwards.

In case your own design-skills are limited (like mine), ask a professional designer to polish the slides: Either someone internal (your own in-house designer) or use a service like SketchDeckThe Presentation Designer or Unicornpitch.

Important: Never (!) outsource the preparation of the pitch itself, this is purely meant for design purposes only.

2. Our dearest Michael WolfePortfolio Advisor at Point Nine and co-founder of our portfolio company Gladly, dedicated an entire medium post on “What should be in my fundraising slides? The art of the startup pitch”.

3. Scott Sage recently published a handy guide to preparing a fundraising deck in “Fundraising? Why you shouldn’t just copy Sequoia’s Pitch Deck Template”.

4. The founder of Crew wrote a detailed guide on storytelling and shared the company’s pitch deck in his article titled “How we built our investor presentation and raised $2 million”.

5. A while ago, Nico shared a simple but efficient pitch deck template.

6. Of course, Jean also has one.

7. Mathilde Collin of Front shared her Series A Deck for Front’s last USD 10M round and wrote an excellent blog post about it.

8. Here is a useful collection of various early stage pitch decks from successful tech companies such as AirBnB, Intercom or WeWork.

9. Reid Hoffman published LinkedIn’s Series B Pitch Deck to Greylock and added some very useful comments and advice to every slide.

10. This might be an obvious one, but try to engage with fellow entrepreneurs that went through the same process and operate a similar business model. If you run a B2B SaaS startup, try to get a glimpse at the deck of another B2B SaaS company that has successfully raised their Series A already.

It’s obviously easier if you have access through a common investor that you share. Members of the Point Nine Family frequently share their decks in order to push each other forward and learn from one another.


If you can tick off all of the above points, this is the process:

1. Prepare a draft of your fundraising deck with no more than 20 slides; the fewer slides, the better! Unnecessary to mention that it is highly advised to use a cloud-solution like Google Slides, PreziBunkrHaikuDeck or Canva to facilitate collaboration, annotations and sharing.

2. Together with your existing investors, board members, advisors and mentors, do as many sessions as necessary to refine the deck and equity story. Do a “dry run” of the pitch in front of them and let them play the devil’s advocate. Take their feedback seriously.

3. Prepare a draft shortlist of (max. 50) potential Series A investors that you would like to approach. Again, consider using a solution like Google Spreadsheets for easier collaboration as several different people will continuously contribute to it.

4. Together with all relevant stakeholders (investors, advisors, key employees etc.) do a session to define who is approaching which potential new investor from the shortlist. Try to reference your preferred partners through common connections from their existing portfolio companies, etc.

5. Formulate a short, introductory “teaser” text to be copied & pasted into an email to forward your deck to the shortlisted, prospective investors. Remember the concept of “double opt in” for introduction requests.

Consider using a service like docsendpitchXO or for sharing the deck. It allows you to keep the pitch deck always updated, even if already shared, keeps you in control over who can see it, does not clutter the recipient’s inbox, and you get valuable viewer-analytics on every slide, which can help you to improve the deck “on the fly”.

6. Avoid common pitfalls when approaching investors described in this – not too serious – presentation about “The VC Game”.

7. Once introduced to a prospective investor, you proceed with a first call or meeting to walk her or him through the deck.

8. First Round recently shared their extensive experience from raising $18bn in follow-on funding for their portfolio companies. It’s a long read, but more than worth it and it contains valuable advice on how to run a fundraising process end-to-end.

9. Last but not least, do not forget to factor in sufficient time to close your financing round. Make sure to not stand with your back against the wall by the time you expect first offers. Start the process early enough (at least five to six months) before running out of money.

Following the above steps shall put you in an ideal position and maximize the outcome of your Series A fundraising process, while minimizing the fundraising effort itself.

After all, the main purpose of launching your startup is not to continuously raise VC money and entertain prospective investors, but to eventually build a large, self-sustainable, profitable business that generates money.

Venture Capital is just a means to an end and should never be the main reason for creating a company.

Insider Info on How VCs Approach Series A Investments

Last Friday, January 6, at CES, we hosted a conversation with a panel of venture capital investors to understand how they approach Series A investing. Participants in the conversation included:

If you want to dive deep into the conversation, you can view it in its entirety on our Periscope feed. There are tons of great nuggets of wisdom and unique perspectives offered by each of our panelists. For those with less time on their hands (after all, we’re building companies here!), here is a summary of some of the topics we discussed:

Each VC Approaches Investments Differently

Each of the investors talked about their investment theses for how they approach investments at key stages such as first money in, seed, series A and later stage investments. They each had a bit of a different approach in terms of target ownership amount, range of investment size, desire to hold a board seat or not, industry/sector focus, and geographies in which they consider investing.  

Do Your Homework Before Approaching Investors

Given how differently each fund and even each individual investor within a fund approaches each of the above items, it is critical that founders do their homework on each investor they may wish to approach before attempting to do so.

Entrepreneurs can do this homework in any number of ways from finding articles or interviews from investors (including things like watching this panel!), following them on social media and paying attention to what they post, pattern matching against past investments, and getting feedback from other entrepreneurs who may have worked with them in the past.


That Said, Exceptions Happen!

But given all of this, it is critically important to remember that in venture capital, each individual investor may have a set of general guidelines they use when making investments but almost every investor can cite instances where they’ve deviated from their guidelines in the past.

That said, the closer your company is to matching their sweet spot for an investment, the more likely it is that they’ll want to engage with you.

VCs Invest Time “Getting Smart” on New Markets

Investors spend considerable time themselves getting up to speed on emerging technologies, and often they are learning about these technologies roughly within the same general window or curve as entrepreneurs who are building businesses around them.

VCs do all sorts of things to dive deep on new technologies including reading articles, attending conferences, and (probably most importantly) trying to meet as many founders and companies as possible who are working on technologies that they want to know more about.

As a founder, keep this in mind, especially if you are working in an emerging area! There is nothing disingenuous about a VC meeting you as part of their learning curve, but one thing you can ask when meeting a VC is to understand how likely they are to make an investment in or around your technology focus or business focus in the near future regardless of whether or not it is in your company directly.

Referrals Drive Deal Flow

There are lots of services on the web now to help investors get smart about a space including Mattermark, Pitchbook, CB Insights, and more. Investors are more likely to use these in a diligence phase or to understand competition around an investment they are contemplating rather than using these for sourcing of new investments.

Investors source the vast majority of their new investments via referrals from other founders, other investors, and trusted members of their personal networks.

Pro tip: when trying to engage a specific investor, the stronger the referral you can get, the better chance you have of securing a real conversation with that investor.

And super pro tip: this is one reason why it’s always useful as founders to spend some time helping and being #givefirst with other founders… you never know when good karma can be helpful to you down the line… like when that entrepreneur you helped two years ago goes on to close a funding round with a top VC and is glad to help you with an intro in the future.



VCs engage in what is called deal syndication, where once they know they want to invest in a deal they will often work to bring other investors in the deal that they think can be helpful to the company in the future and down the line as well.

Their approach to syndication can change on a deal by deal basis…on some deals an investor may want to take the bulk of the round in order to achieve a target ownership percentage of the round…in other deals they strategically may want to bring in a co-investor who they know can lead a later stage round in the future if necessary (typically a VC doesn’t intentionally seek to lead multiple rounds of investment in a company in a row as they want outside investors into the company in order to make sure that the company is fetching a market price with each new round). Various factors can change their approach on this such as whether the company is pre-revenue, pre-product, or in a less mature market.

Product Market Fit

VCs often talk about whether a company has achieved product market fit but this is a fairly subjective thing. Some investors may have key metrics they want to see a business achieving in terms of revenue or growth before deciding to invest…and again the maturity/immaturity of a market or technology may impact this as well. In general, this goes back to the above point that every investor likely has a set of theses they use to guide them but in the end the decision to invest or not is highly subjective.

Finally, one last point to consider is that venture capital investment is only one of many means you can use to grow your business. You can of course bootstrap by living within the means of the revenue you directly generate. If you are working on a new technology, there are often grants at your disposal such as NSF SBIR grant.  

And there are debt instruments and other tools at your disposal (though a typical bank loan is usually not readily available to early stage startups due to lack of revenue and extreme unpredictability about the business itself). In general, figuring out how to finance your business is, like most things to do with startups, extremely hard and is much or more art than science.  

Hopefully these tips and insights help make the journey just a little more accessible! And again, if you have time, check out the full conversation for more details and tips. Thanks again to Hamet, Jenny, Jon, Nicole, and Ryan for taking the time to share their thoughts!

How to Raise a Series A Round

One of the questions I get asked regularly by founders is what they have to do to raise a Series A round of investment in the $3M-$10M range. I always encourage them to consider applying to an accelerator program since one third of all Series A rounds in 2015 were in companies that graduated from accelerators. But what about the companies that don’t get accepted into accelerator programs? The acceptance rate is fairly low (Techstars accepts 1% of all applicants), so startups should have a backup plan when it comes to securing Series A.

According to PitchBook, early-stage VCs may only look to top-tier accelerators for their pipeline of Series A-worthy prospects. With the amount of hands-on time these alums receive from mentors, founders, and other great entrepreneurial minds, it makes sense to look more closely at these startups when investing.

So your company missed the cut when applying to an accelerator program – how can your company attract more VC eyes?

Leverage Your Network

When fundraising, your network is critical whether you went through an accelerator or not. Surrounding yourself with the people who have done it right, who know the game well, and can give you the right tips is key to your company’s success in fundraising.

Recognize that there are an enormous number of companies being created each year and ultimately many of them are competing for the same Series A money. Techstars sees tens of thousands of startups applying to our programs each year, and we only fund about 250 at the seed level annually. Of those 250, about half go on to raise Series A rounds.

One reason those 125 or so companies are able to raise Series A rounds is due to tapping their networks early in their companies’ lifecycle. I see a lot of early-stage companies meeting with later stage investors well in advance of being in the market for a Series A round. They build relationships early, maintain those relationships, and knock when the time is right.

The market is currently flooded with seed capital, but there is no more Series A capital than there has been over recent years. So start early, and build genuine relationships before you start your Series A tour. Those in top tier accelerators may have an unfair advantage in that regard, but you can manufacture a strong network and book those early meetings as well.

Extend Your Network

The broader and more global your network is, the easier time you’ll have leveraging your progress and credibility in order to manufacture meetings. This broad network comes easier to companies that can go through an accelerator, as you connect with other in-program companies, investors and mentors, but how can you build a larger network organically?

You may currently have a small network, but growing that network has become easier with the use of social tools. LinkedIn, Conspire, even Facebook and Twitter allow you to grab branches that may have previously seemed out of reach.

Those LinkedIn connections, friends-of-friends, previous coworkers you haven’t spoken to in years, are all at your disposal. They may not be the VC you’d like to invest in your company, but they may be able to make an introduction or give you tips on how to get your foot in the door. You’ll never know until you ask.

Being Series A Ready

I’m often asked what it takes to be “Series A ready” in terms of metrics, progress, and traction. Unfortunately, there’s no easy answer. Series A investments are competitive right now, and the smartest VCs I know are still willing to take a chance before there’s any concrete proof.

What is necessary is conviction on the part of the investor. So think of traction as often necessary but generally insufficient evidence to help generate conviction. At least as important is helping the investor build conviction through a series of meaningful interactions over time.

Fundraising Lessons

Having recently raised $150M for institutional investors, I heard many people say no, and you will too. The key is to take as many meetings as possible. Build those relationships early. Maintain those relationships. Leverage angel and micro-VC connections before even thinking of pitching them.

When fundraising, your network is critical. Leveraging it early and often is the key. Don’t make the mistake of waiting until you need money to engage sources of capital. If you’re in a squeeze for capital and you have a solid, mutually beneficial, relationship with a VC, your chances of raising will increase dramatically.

This article was originally published in Fortune.