Fundraising FAQ: 25 Questions Every Founder Needs Answered
Everything you need to know about raising money for your startup—from SAFEs and term sheets to valuations and dilution. Direct answers from experienced startup CFOs.
Fundraising Basics
How much should I raise in my seed round?
Raise enough for 18-24 months of runway to achieve milestones for your next stage. For seed, this typically means $1-3M depending on your market, team size, and growth plans. Calculate: (Monthly burn × 18-24 months) + buffer. Raising too little forces another raise too soon; raising too much means excessive dilution.
What milestones should I hit before raising Series A?
Series A investors typically want to see: $1-2M ARR with strong growth (3x+ YoY), proven unit economics (LTV:CAC > 3:1), product-market fit indicators, a scalable go-to-market motion, and a clear path to $100M+ revenue. The specific bar varies by market—B2B SaaS has different benchmarks than consumer or biotech.
How much equity should I give up in each round?
Typical dilution: Pre-seed/Angels 5-15%, Seed 15-25%, Series A 15-25%, Series B 10-20%. After Series B, founders typically own 25-35% combined. Plan your dilution across all rounds—modeling this early helps you negotiate better and set realistic expectations.
When is the right time to start fundraising?
Start when you have 9-12 months of runway remaining, have achieved meaningful traction (or for pre-seed, have a compelling team and vision), and can tell a credible story to your next milestone. Don't wait until you're desperate—desperation shows and weakens your negotiating position.
How do I know what valuation to ask for?
Valuation should reflect: your traction relative to stage, comparable recent deals, investor demand for your space, and how much you're raising. For seed: $5-15M pre-money is typical. For Series A with $2M ARR: 20-50x ARR depending on growth. Research comparable deals and talk to other founders.
Investment Instruments
What is a SAFE and how does it work?
A SAFE (Simple Agreement for Future Equity) is an investment instrument where investors give you money now in exchange for equity later (at your next priced round). SAFEs have a valuation cap (maximum price for conversion) and sometimes a discount (percentage off the Series A price). Post-money SAFEs specify ownership percentage directly.
Should I use a SAFE or convertible note?
Most founders prefer SAFEs because they're simpler: no interest, no maturity date, no debt. Convertible notes accrue interest (typically 4-8%) and have maturity dates that can create problems if you don't raise before maturity. Use notes only if investors require them or for bridge rounds.
What's the difference between pre-money and post-money SAFEs?
Pre-money SAFEs calculate conversion as if the cap is pre-money—your dilution depends on how much you raise total. Post-money SAFEs (now standard) specify a post-money cap, so investors know their exact ownership regardless of round size. Post-money is clearer but can result in more founder dilution with multiple SAFEs.
How does a valuation cap work?
The cap sets the maximum valuation at which SAFE/note investors convert to equity. If the cap is $10M and your Series A is at $20M pre-money, SAFE investors convert at $10M (getting 2x the shares they'd get at $20M). If your Series A is below the cap, they convert at the actual price.
What is a discount on a SAFE or note?
A discount gives early investors a percentage off the Series A price. A 20% discount on a $10 Series A share means the SAFE converts at $8. Discounts are often combined with caps—investors get the better of the two. 15-20% discounts are typical.
Terms & Negotiations
What is a term sheet and what should I focus on?
A term sheet is a non-binding summary of key investment terms. Focus on: valuation (pre-money), amount raised, liquidation preferences (1x non-participating is founder-friendly), board composition, anti-dilution provisions, protective provisions, and vesting requirements. The rest is usually standard. Always have a lawyer review.
What are liquidation preferences and why do they matter?
Liquidation preferences determine payment order in an exit. A 1x non-participating preference means investors get their money back first OR convert to common stock (whichever is better). Participating preferences let investors get their money back AND share in remaining proceeds—avoid these. Multiple preferences (2x+) are predatory.
What is anti-dilution protection?
Anti-dilution protects investors if you raise a future round at a lower valuation (down round). Weighted-average anti-dilution is standard and fair—it adjusts the investor's price based on how much you raise at the lower price. Full ratchet anti-dilution reprices their entire investment and is very unfavorable to founders.
Should I accept a board seat for seed investors?
Generally no for seed. Board seats give investors voting power on major decisions. At seed, consider an observer seat (no vote) instead. Reserve board seats for Series A leads. A typical progression: 2 founders at seed, add 1 investor at Series A (3 seats), add independent director later (5 seats).
What are protective provisions?
Protective provisions give investors veto rights over certain actions: new stock issuance, debt over a threshold, changing charter documents, M&A transactions, changing business focus. These are standard but negotiate the thresholds. You want to operate normally without seeking investor approval for routine matters.
The Fundraising Process
How do I find the right investors?
Research investors who: invest at your stage, have invested in your space, write checks your size, and have relevant expertise. Use Crunchbase, PitchBook, and LinkedIn. Warm introductions are 10x more effective than cold outreach. Other founders, lawyers, and advisors are good sources of intros.
What should be in my pitch deck?
Essential slides: Problem, Solution, Market size, Business model, Traction/metrics, Competition, Team, Go-to-market, Financials/ask. Keep it to 12-15 slides. Lead with your strongest point (usually traction or team). Make it visual and skimmable—most decks are reviewed in 3-4 minutes initially.
What should I include in a data room?
Data room contents: Corporate documents (incorporation, cap table, stock agreements), financial statements (2-3 years P&L, balance sheet, cash flow), metrics dashboard, customer list with contract values, employee roster with compensation, IP documentation, material contracts, and any litigation. Organize by category.
How long does the fundraising process take?
Expect 3-6 months from first meeting to money in bank. Breakdown: 4-8 weeks of meetings to get a term sheet, 1-2 weeks to negotiate and sign term sheet, 4-8 weeks of due diligence and legal documentation. Hot deals move faster; difficult markets take longer. Budget for 6 months in your runway.
What happens in due diligence?
Due diligence verifies your claims. Investors review: financials and metrics (are they real?), legal docs and IP ownership, customer references, background checks on founders, market research, and technical architecture. Be honest upfront—surprises in due diligence kill deals and reputations.
Advanced Topics
How do bridge rounds work?
A bridge is a small raise (usually SAFEs or notes) to extend runway until a larger round. Inside bridges from existing investors signal confidence. Outside bridges at aggressive terms can be predatory. Common terms: 20% discount to next round, sometimes with caps. Bridges should have clear purpose—milestone to unlock next round.
What is a down round and what are the consequences?
A down round means raising at a lower valuation than your prior round. Consequences: anti-dilution kicks in (increasing investor ownership at founder expense), signals struggle to employees and market, and can trigger morale problems. Sometimes necessary for survival—better to own less of a surviving company than more of a dead one.
What's the difference between lead investor and follow-on investors?
The lead investor sets the terms, does the most diligence, writes the largest check (typically 50%+ of round), and often takes a board seat. Follow-on investors accept the lead's terms and fill out the round. Every round needs a lead—finding one is the hardest part. Some rounds have co-leads who split these responsibilities.
When should I consider venture debt?
Venture debt can extend runway without dilution. Best used: after an equity round (lenders like fresh equity cushion), for capital-efficient expansion, or to bridge to profitability. Terms: 1-4 year loan, 10-15% interest, warrants worth 1-2% of round. Downside: requires payments and has covenants. Default risk if business struggles.
How do secondary sales work?
Secondary sales let founders/employees sell existing shares to investors, providing liquidity without company raising money. Common at Series B+ or before major exits. Typically limited to 10-25% of holdings per transaction. Requires company and existing investor approval. Pricing usually at current round valuation.
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