Raising funds for the first time 💸
Reading time: 30 minutes & writing time: 20 hours (you're welcome!)
Table of contents:
Intro
Since Commune closed its seed round of almost €1.5M last summer, I keep on getting asked questions about the process and how to make it happen. For orders of magnitude, there were 1M+ company registrations in France in 2022 but only 689 funding rounds.
It’s to answer all these questions and make the most benefit from it, but also to demystify the whole process, that I’m sharing as openly and transparently as possible my own experience.
“Climbing the highest mountains still requires to put one foot in front of the other. You will reach the summit, step by step”
This is more or less what a friend told me at a time I was going through a rough patch, and - in hindsight - I cannot think of more appropriate words to describe the fundraising journey I embarked on with my cofounder shortly after we decided to launch Commune, the very first coliving dedicated to single-parent families in the entire world.
Building an ambitious coliving company - even an asset-light one - is by nature cash-intensive. Given the pioneering character of our project and the fact it was a world-premiere, we knew we would need to revert to venture capital to kick-start it… and this is where my story starts.
A bit of context
Fundraising is never a walk in the park. I knew it, yet, I did not expect it to be such an intense rollercoaster and excruciating process. Had my cofounder and I known the real deal beforehand, I’m not sure we would have thrown ourselves into it with such naivety and candour. However, there’s one thing I’m sure about: I couldn’t have done it without him by my side, nor without my incredible family, friends, and more broadly my entire support network - be it from an emotional, psychological, or financial standpoint.
The entire process to raise roughly €1.5M, with a 65%-45% split of equity and debt, spanned over 8 months. We started with the soft launch of our roadshow at the very end of 2021, champagne corks popped in June to celebrate the closing, and the operation was officially completed along with the confirmation of our non-dilutive funding in July 2022. While it seemed like forever at the time, after many open-hearted conversations with other entrepreneurs, we realised it was pretty reasonable, all the more so that we were able to negotiate great terms and conditions for this round that let us maintain a very high degree of freedom as founders. On top of that, we have an amazing investor base: we have 13 nationalities represented, 45% of women and 50% first-time investors, as well as almost 45 years between the eldest and youngest person on the round. Many are entrepreneurs themselves, and we managed to steer away from institutional investors and their heavy processes - at least for now.
My experience
Before fundraising for Commune, I had a few experiences raising funds:
Crowdfunding
I raised €6K in 2013 to make bronzes; and €7K in 2020 to produce the first batch of the first-ever reusable-bottle-holders
Scholarships
I secured close to $90K throughout my studies;
Philanthropy
As the founder, president and later CEO of the fast-growing NGO Règles Élémentaires, I managed to raise roughly €1M over 5 years.
Although this wasn’t close to anything like raising funds for a startup developing a world premiere, rightly or wrongly so, I was not afraid about the process in itself.
On top of that, I was lucky enough to know a bunch of entrepreneurs who had already raised money and were willing to make intros - some of whom would prove incredibly precious sponsors throughout the process.
Last but not least, I had the codes:
I’m a well-rounded overeducated (3 masters degrees…) European woman living in Paris, where the talk of town is the “startup nation”;
I started my career in tech, at a company that churns out more entrepreneurs than most ecosystems around the world and whose former employees make up a powerful and reputable mafia;
I personally knew (a few) business angels;
I had long started my entrepreneurial journey - I tend to think that (successfully) running an NGO is the hardest form of entrepreneurship;
I already had made a name for myself in spheres that mattered for the success of my newest-born project, notably in politics and the media;
I had the perfect cofounder - our partnership is described as “a match made in heaven” by one of our investors.
And yet, this was one of the hardest challenges I ever had to go through.
There were legitimate roadblocks, such as:
the fact our product was unheard-of and de facto had no competitors (nor comparables);
the absence of a minimum viable product (breaking news, sizable empty buildings in Paris are hard to come by, especially if you can’t pay for them…!);
the underlying real estate component.
Yet, the biggest obstacles had absolutely no rationale behind them.
The biggest obstacles were that:
we were “atypical” founders, and more precisely a woman who happened to have started at some point in her life a successful NGO (apparently, for a lot of people, non-profit = evil) and a foreigner fluent in 6 languages with a corporate background;
our product was low-tech, and did not fit the (back then) highly sought-after category of B2B-oriented SaaS products.
While the irrational craze around the latter is coming to an end with the ongoing market correction; the former is very problematic. As I was the one leading the fundraising efforts (for all the reasons listed above), I experimented first-hand the fact that women are asked to show proof where men are asked to show potential. I also witnessed directly the “boys’ club” effect - a majority of male investors, often getting advice from fellow male investors, fund a majority of male founders (and all-male founding teams) who most often are [pick as many as you want] friends/former colleagues/come from the same social circles/went to the same schools/etc. This is not a “male” characteristic: it’s simply human. We, as humans, relate more to people that are like us. It’s the very nature of cognitive biases, ancestral survival mechanisms that became weapons of mass discrimination: everyone should read the eye-opening essay Biased to fully grasp what’s at stake. Yet, given there’s a historical and persisting lack of representativity in the VC landscape, with a disproportionate share of men especially at senior levels, this means that naturally more money flows to those who are traditionally perceived as “typical” founders: those that share characteristics with founders that have been funded in the past. This fuels a vicious circle and it worsens in times of crises, where investments in female founders plummet because they are perceived as riskier - against all statistical evidence. Indeed, the evidence tends to show the opposite: women-led ventures have historically proven better-performing and less risky than men-led ones. And before you jump to my throat as I state these uncomfortable truths, be aware that I’m just voicing what the Harvard Business Review (but also McKinsey, BCG, and SISTA amongst other reputable sources) brilliantly demonstrated.
In hindsight, speaking from the perspective of our own fundraising experience but also bearing in mind the many relatable stories I’ve heard since, I’m shocked to see how much boils down to luck and “unfair advantages” like veteran venture capitalists enjoy reminding us far too often.
I hope this faithful account of my own fundraising journey can help those following in my footsteps, and contribute to making VC accessible to evermore “atypical” founders.
Fundraising 101
This is a recap of the basic steps you will go have to go through as you raise equity:
Find yourself a law firm
Make sure you trust them and that you don’t need to pay any fees upfront. They will be key partners throughout the process, helping you define and negotiate your company’s valuation, the terms and conditions of the fundraising round, and more importantly, they will deal with all your prospective investors (multiple and sometimes strange) requests, as well as these people’s legal counsels.
Prepare the materials
Deck - it has to be solid but don’t worry, you can always update it throughout the process. My advice is to share your deck with prospective investors live (i.e. over a visio), and send it by email only after you’ve had a chat with them, and only if they show genuine interest in your venture.
Beware: decks are often circulated without the founders’ consent, so make sure there’s nothing in there that you wouldn’t want your competitor(s) to see.
Business plan - a simple spreadsheet, with projected income statements up to EBITDA margins, P&Ls, and, if you deem it useful, cashflow statements.
Short brief - One or two paragraphs that you can easily share over email, notably to the people who can make introductions. Don’t hesitate to have this brief in multiple languages if you’re targeting international investors.
Pitch - A one-to-two minute oral presentation of your project that makes people want to know more about what you’re building.
Updated cofounders’ CVs - some funds or grant application processes might ask for it. Better safe than sorry!
Make a list of trusted people you think can support you in the process
Either as investors and/or advisors and reach out individually letting them know how you’d like them to be involved. These people, especially if they fundraised themselves, will help you at key moments of the process and cheer you up when you need it! These people can also be advisor-material: for the record, any official advisory position in your company should come with a financial commitment from the future advisors (#skininthegame). If you want to give away additional equity in exchange for an advisory role, make sure it’s all in writing in a service agreement detailing your advisors’ roles and commitments.
Make a (broader) list of potential investors
Think beyond your inner circle, think former professors, colleagues, neighbours, distant cousins, but also strangers you follow on social media and whom you sense could be interested in your project and reach out individually. As you reach out to people via mail or Linkedin, make sure you leave them an exit option and a non-financial way to contribute (i.e. by making introductions).
Ask for introductions
VC is a very small world, and if you think/know that someone in your network is connected to people you think could be relevant, don’t hesitate to ask to be put in touch. More generally, at the end of every fundraising exchange, don’t hesitate to ask if the person thinks of anyone you should talk to. More often than not, you will end up with precious contacts that will be key in closing your round.
Share widely
Via email and social media, as well as networking events. Linkedin posts, invites and messages are particularly powerful tools.
Organise meetings with prospective investors
Calls over visio are ideal and will help you make the most of your time, but depending on the person you’re talking to, in-person tea/coffees can be more appropriate. And, clearly, it’s nice to take a break from your screen from time to time!
Make sure you speak to everyone who can invest/advise/make introductions, and that they fully understand your concept so that they can share it themselves in their networks later. First exchanges should be done by the person leading the fundraising efforts and last no longer than 30 minutes. If it’s positive, you can plan another meeting with your cofounder/other relevant stakeholders of the company to deep dive into specifics. Afterwards, everything should be dealt with over email, with few exceptions (i.e. institutional investors or potential lead/colead investors). Generally speaking, be mindful of your time and make sure that you have clear next steps at the end of every meeting.
Follow-up
Don’t hesitate to reach out multiple times to the same people and keep them updated about how things are going. Notably, don’t hesitate to share the names of newly confirmed investors on the round: surprisingly so, even in VC, most investors are followers… meaning they will be reassured once they see your project has been vetted by peers.
Track
Make sure you take note of all conversations, as well as prospective investors’ feedback. It will be useful to improve your pitch and your deck, but also in the future, as you prepare for later rounds. Personally, I tracked everything with a simple Google spreadsheet.
Once you’ve reached 70%-80% of the targeted fundraising goal:
Announce you’re close to closing
That’s when people who committed on the round should hurry up to make final introductions and when they will communicate the final amount they want to invest. That’s a key moment when you can have good and bad surprises! Typically, on our round, we had a few investors who confirmed less than originally planned and others that confirmed more than expected.
Write up the term sheet
More precisely, ask your lawyers to do so, and make sure you tell them what’s negotiable and what’s not. If there’s a lead investor on the round, it will have to be negotiated with them. In any case, it’s always best if you’re the one proposing the template that will serve as a basis for the negotiations.
Write up the shareholder agreement
Idem.
Close
Get everyone to sign the legal documentation sent over by your lawyers. Don’t hesitate to message investors individually and on multiple channels if they are not reacting. Indeed, your investors are busy people and will often need one if not several reminders!
(Celebrate!)
Follow-up on wire transfers
After they’ve signed the legal docs, your investors will have to wire the money to a dedicated escrow account, where all the funds will be held until the operation is officially completed. As investors make their wire transfers, make sure the amounts match exactly the legal documentation, otherwise you’re headed to troubles and delays (nothing insurmountable though, as you’ll see below).
Ask for the funds to be transferred to your company’s account
Once all wire transfers have been made and match exactly the capital increase amount listed on the documentation, the bank will emit a certificate and will release the funds to your company’s account.
Sign the legal documentation
As you complete your fundraising, you legally admit new shareholders within your company and therefore need to sign off tons of documents, including but not limited to modified bylaws and shareholder agreement (if you already had one in place).
(Celebrate again!)
Follow-up on any additional legal documentation
Typically, some investments via regulated vehicles, will require extra documents to be signed off (i.e. for each investment in a French company made via a so-called PEA you will have to complete a a specific certificate issued by the investor’s bank).
Worth noting, your company can be incorporated before or at the same time you’re fundraising.
My advice
Don’t raise equity if you don’t need too!
Raising funds in equity is technically selling pieces (shares) of your company to future shareholders and giving away more or less control. The earlier you raise equity, the higher the cost: indeed, early-stage investors hope for returns that are 10x (this is 1,000%), 100x (this is 10,000%) if not more… Comparatively, raising debt, even in the current context, will never yield interests above two-digit figures. Nevertheless, entrepreneurship being a growing trend and perceived as a very prestigious career path (similarly to investment banking/management consulting at the beginning of the century), more and more people follow this path… not by true calling, but simply because it’s the thing cool kids do.
As a corollary, fundraising is glorified and there is (or at least, was until recently) an unhealthy competition for bigger and bigger rounds. While we all see the - impressive - numbers and glossy founders’ pictures, we don’t see the nitty-gritty details of these rounds’ terms and the level of control investors have over the companies they’re investing in. Don’t forget that more money = more control; so, do yourself a favour and avoid/postpone raising equity if you can! In case it wasn’t explicit so far, not all projects require (pre-)seed funding. For instance, building a productivity app can start with very little money, while this isn’t true for most biotech companies!
Finally, make sure to distinguish the cash you need, from the equity you want to raise: indeed once you’ve raised some equity, your company will probably be eligible to some non-dilutive funding. This was our case, and almost half of our funding round was debt. So make sure, to raise as little equity as it is safe and comfortable for you to go forward.
However, don’t get me wrong, there are benefits to raising equity with (cool) investors:
access to knowledge (aka smart money);
access to networks;
signaling;
no loan-repayment pressure;
desirability.
Surround yourself with sponsors
Not only mentors, investors or friends; but people who’ve been there and who will actually invest in you, vouch for you, support you, listen to you, introduce you to their networks and become ambassadors of your project and vision.
Choose your investors
They will own shares of your company, have voting rights and control over some important decisions. Be sure you’re comfortable getting in such a relationship with them: don’t hesitate to ask for references and do your own due diligence. Choosing your investors, also means having an investor base that makes sense to you and the business you’re building. For me, it meant having representativity amongst investors. I could not accept to go with just another all-male round, and decided on a specific action plan consisting in:
lowering the minimum ticket to join the round from €30K to €15K;
creating a mini-pact that let people with valuable skills and experiences invest tickets between €5K & €15K at the condition that they would be represented by one single individual chosen by us cofounders;
[I will specifically deep dive into this mechanism in a future writing spree as many (many) people have asked how it works and what it brings us on a daily basis, but also because I believe it’s a relatively easy yet underused tool to diversify cap tables.]
proactively reaching out to people we wanted by our side.
You can never be vocal enough about the fact you’re fundraising, and I strongly advise to widely broadcast the fact you are in all your networks - including family, friends, classmates, former colleagues and of course on platforms like Linkedin - as you never know where the actual investments will come from. Don’t hesitate to update prospective investors throughout the process and follow-up many times… One investor confirmed their investment after our 5th attempt to bring them on board!
Worth noting: we had 50% first-time investors, many of whom didn’t even consider the option to invest in venture capital before we mentioned the opportunity to them. Bear in mind that more people than you think are potential investors, and that there are often interesting tax mechanisms to incentivise such investments (i.e. tax cuts, tax shields…).Be prepared
Completing a funding round can take longer than expected, meaning a longer period of time during which you most likely won’t get paid, won’t sleep much, won’t have any visibility nor ability to plan anything in the medium to long-run, and you will also most likely feel a lot like a parrot, repeating your pitch over and over again!
It can be particularly hard, because it’s a time when you cannot really move forward on execution, and when you realise that your project’s materialisation is dependent on people that are completely external to it, sometimes even strangers you haven’t met with yet!
Be cautious with your time
It’s our most precious resource, and it’s particularly true when you’re fundraising. The process will take most of your working (waking?) hours, and probably no less than 80% of the time you spend on your company. It’s therefore extremely important to prioritise and organise your life so that you have the necessary energy to get things done and move your business forward. Think twice before accepting any meeting, favour calls/visio over in-person, set your meeting default duration to 30 minutes maximum.
Be cold-headed
As you start fundraising, the word ticket will not resonate with “metro” or “concert” anymore, but with multi-million investment possibilities… You might chat with (institutional) investors who have billions in AUM. However, none of this should distract you from your fundraising objective. You shouldn’t try and raise more equity than you need just because you can: this would prove very costly down the road. Even if it’s tempting to try and go with those with the deepest pockets, your bottom line should always be the level of dilution you’re willing to accept and level of control you’re ready to give away. The bigger and the more regulated the investor is, the more you will have to give up.
Refine and update your business model and fundraising targets regularly
Throughout the roadshow, you learn new things and gain key insights that will have consequences on everything you do, including fundraising. More generally, in the very early days of a company, new information can have a huge impact on your business prospects and needs. In my case, we found out after starting the roadshow that we would be eligible to much more non-dilutive funding than we expected, meaning we were able to lower the amount of our equity fundraising, and as a result, lower the level of dilution. To mitigate the uncertainty of the debt financing, we set up a mechanism of tranches, meaning we were able to close a tranche in the summer of 2022, but kept the option to raise more (i.e. with a second tranche) on the same terms later that year. In the end, we did not need to exercise this option given we got all the non-dilutive funding hoped for, and even more. Going back to my first point, don’t raise more equity than you (really) need!
Get support from experts
We decided to apply to AngelSquare, an investment network of business angels, that accompanies founders in the fundraising process and that has a great track-record. AngelSquare takes a fixed fee of €5K, as well as a 5% fee on the funds invested by people from the network they made intros with. We found our lead investor through them, and AngelSquare definitely helped us put things into perspective throughout the process. As our seed round was nearing completion, we decided to move forward on the non-dilutive front: following another coliving operator’s advice, we decided to work with Storen, a company that provides support to startups eligible to government-backed loans and subsidies. They helped us put together a compelling application, so compelling that we got close to twice the amount of non-dilutive funding than what we were expecting, making this partnership one of the best investments from both a money and time. The whole process took about one month from start to finish.
What I experienced first-hand
A deal is never a deal until it’s a deal
We had talks with an investment fund for many months, leading us to believe we were aligned both on the amount and terms of their investment, only to find out at the term-sheet stage that they were asking for ridiculous conditions that would have choked our company. These conditions (including but not limited to a board seat, veto right, crazy monthly reporting, etc.) were all the more unfathomable given the round stage and size, and the fact that they weren’t leading or co-leading it. We also had an investor pulling out at the last minute (#funtimes). However, we also had extremely nice surprises, including from our lead investor who agreed to double their ticket overnight!
Business is business
No fluffy words or coating in sugar can compete with binding legal terms. Be extremely careful to whatever you will agree to - and sign - with your shareholders. Never forget it’s your company and that it will most likely succeed thanks to the founders’ vision and freedom to execute it.
Freedom has a price
In the end, we turned down a €100K potential investment and took the risk to close a smaller round than planned, in order to make sure we would remain free to do what we had in mind for our company in the way we wanted to do it. This wasn’t an easy decision, but it was the right thing to do: it was both driven by a shared gut feeling (you know something is not ok, when it starts making you and your cofounder feel physically sick…) and cold-headed advice given by seasoned business angels and entrepreneurs-turned-investors who had committed to our round.
Fundraising makes you desirable
I cannot count the number of inbound requests from potential investors to join the round after we announced our closing in the press… Even from some people I had directly reached out to during our roadshow, and who apparently hadn’t seen my (multiple) messages and (frequent) Linkedin posts (!). Sounds ridiculous, but FOMO is sadly real: having your face in a first-tier business magazine creates more desirability for your company than any peer recommendation or solid business model. In fairness, these people have nothing to lose trying, because as explained above, it is quite frequent to have multiple tranches on a round… but it’s always up to the founders to exercise it or not, and in our case we didn’t, meaning no additional investor joined the round after our closing. However, this kind of visibility/traction is definitely nice to have for future rounds, reason why I personally followed up with everyone who reached out.
What I wish I’d known before
The full picture and timeline
Getting someone to agree to invest in your company, via email, text or orally does not mean they’re in for real. Only once they’ve signed a term-sheet you can be semi-confident they will eventually join the adventure, even if that won’t be effective until they:
signed the shareholder’s agreement;
signed the subscription warrants;
wired the funds;
and - just for the fun of it - some banks, will ask you to sign tons of paperwork (sometimes by hand…) to confirm the fundraising was successfully completed and that the person who invested is legally considered an investor. This is particularly true for investors investing via the (French) PEA scheme.
Beware: if you don’t send the required documents in the required timeframe, the investment could be cancelled, with retroactive implications on the entire operation. Trust me, you don’t want to get there, so be quick and proactive!
Prospective investors, especially institutional ones (i.e. VC funds), will use you
Your deck, your pitch, your answers to their questions, will all fuel their strategic monitoring of the industry/sector/market; sometimes for the benefit of their own existing portfolio companies. Don’t waste time with prospective investors that you deem are not a good fit with your company’s industry/stage... unless you’ve got a very good reason to, or you’re speaking with someone you can actually make decisions and exceptions (in investment funds, we’re talking about principals and above). Be even more careful about follow-up calls/requests that eat up time. I cannot recall the number of hours wasted, sometimes over multiple calls and emails, with VC funds which said they would exceptionally consider the deal despite the fact it didn’t enter their traditional investment scope… and that eventually dropped it for reasons that were obvious from the very first exchanges.
All investors need to sign multiple documents and wire the funds in a very short time-window
Most likely, you will have to extend that time-window because your (lawyers’) email might have gone to the spam folder, because people will be on holidays, and because most investors are busy people - sometimes dealing with their investments only on evenings and weekends - and will simply forget.
All investors need to wire the exact amount corresponding to their investment
This means that it will very rarely be a round number and you will have to chase people for pennies (#truestory). Indeed, this is because people don’t buy fractions of shares. It has broader implications, especially if you have international investors investing in a different currency than this of the funding round. Typically we had a US-based investor who wired the correct amount corresponding to their investment with the exchange rate of the day of the wire transfer… but with fluctuating exchange rates, we ended up receiving more than what we should have, and we had to wire back the difference in order to have the exact amount corresponding to this investment in order to be able to complete the operation.
All investors see exactly how much everyone else invests
While it makes sense when you think about it, it came as a surprise to me but also to many investors whose investment in Commune was the first in private equity. Indeed, when you invest in publicly-traded companies as an individual, you don’t have access to this kind of information.
Time to close a prospective investor is not correlated to the amount invested
It is rather correlated to the person’s risk appetite/knowledge of your industry/understanding of the project/relationship to the founders/experience in angel-investing... but not always. My fundraising experience confirmed once again how unpredictable people’s relationship with money is. For instance, I had 3 separate chats with a friend of a friend who was very enthusiastic about making a €5K investment and who literally disappeared and stopped answering emails overnight; when it took only one 30-minute meeting for someone I met over Linkedin to immediately invest €20K.
Having investors drop out at the last minute is not nice, but it’s not the end of the world
You actually (only) need to have received at least 75% of the funds listed in the legal documentation to be able to complete the operation and finalise the fundraising round.
There is seasonality in fundraising
While there is no right time to fundraise, raising funds close to the winter or summer holidays is not ideal. It might sound trivial but most investors - who are often affluent people - will go on holidays. This means that your roadshow will most likely lose momentum and that you might need to start all over again when people get back to their investing mood. Based on my - limited - experience, my best guess is that March and September are good moments to launch your fundraising efforts, especially if it’s a very early-stage round.
It’s not a sprint, it’s a marathon
I used to see and believe all these fabulous Linkedin posts and TechCrunch articles about fundraising rounds completed in just a few weeks, sometimes days. While it might be true for a handful of companies founded by successful serial entrepreneurs, the reality is much different including for most successful/famous/visible companies. Fundraising is a process that takes time, if only for the legal negotiations and paperwork. For reference, it took us 26 days between the closing date and the official completion of our round.
Trust your luck and breathe
While fundraising, like in many things in life, there are many unknown unknowns along the way. Sometimes, despite your best efforts, you will have absolutely no control over elements that will be deal-making or deal-breaking. You just have to accept that there are things beyond your control and focus on the ones where you can have an impact, whilst hoping for the best. It’s hard. It’s infuriating. But there’s nothing you can do about it. With this in mind, make sure you make a good use of your energy and find the time to recharge. Lots of sleep, meals with friends, making time for your hobbies, movie nights, parties, holidays… it might sound trivial, but it’s key to keep your feet on the ground and your sanity.
Put things into perspective
Ask yourself what success looks like and accept that it’s a scale and not binary. Fundraising is a means to an end, not an end in itself. And fundraising is never a matter of life or death.
So, even if there will be consequences in case things don’t go according to plan, including bankruptcy in the worst case scenario, you will most likely come up with creative solutions or consider unexpected opportunities to move forward. Any fundraising journey is super intense and will teach you tons on the way: about your business, your industry and, more importantly, yourself. You will discover and master new skills. You will meet incredible people and dive into human psychology on a whole new level. You will take away precious lifelong learnings and be ready to face many more challenges than you could ever think of. So, buckle up, and get ready for a hell of a ride!
Useful resources
Parallel, the law firm that trusted us and structured our round (shout out to Awa and Jérémie for their legal - and psychological - support!)
The jargon
AUM stands for “assets under management”
BA stands for “business angel” and refers to someone who invests in very early-stage companies
Bridge, short for “bridge round,” is an interim financing round intended to make more cash available to company until the next, larger financing round. Concretely, a bridge happens when you (need to) raise more money from existing investors between two fundraising rounds.
Cap(italisation) table summarises the shareholding of your company
Closing corresponds to both the date listed in the legal documentation as the fundraising’s completion date, and the process of getting all investors to sign and transfer the funds
Deck refers to the (pdf) presentation where you explain your company’s goals, development prospects and why you are fundraising. The best tool out there to build your deck is by far Canva in my opinion!
Dilution is the fact that founders and later investors will have to reduce their shares in the company to bring one new investors. It’s the opposite of relution.
Equity typically refers to shareholders' equity, or the shares of a company as opposed to debt
Family office is a privately held company that handles investment management and wealth management for a (wealthy) family
Fundraising/Funding rounds refer to moments when a company goes through a capital increase, and most likely raises debt simultaneously. They have different names depending on the stage or level of development of the company, and, historically at least, the amount raised.
Family & Friends refers to the earliest round where founders can rely on love money.
Pre-seed is an early round, often when the company is still at the idea stage
Seed is an early round, often when the company has a first version (i.e. MVP) of the product or service it intends to build at scale
Series A, B, C… refer to later rounds aimed at accelerating the company’s growth and helping it reach key milestones such as expansion in new countries or verticals
Worth noting, not all companies that fundraise go through all stages, especially the earlier or later ones. Also, founders will often communicate on total fundraised amounts, including both equity and debt. Don’t be fooled!
Institutional investor refers to a company or organisation with employees that invests on behalf of others
IPO stands for “Initial Public Offering,” and refers to the moment when a company goes public and when its stocks get traded publicly for the first time. It’s a long process conducted by one or several underwriters (i.e. investment banks).
Lead/Colead refer to investors who put the biggest tickets (see below) on a round, and will be leading the negotiations on the term sheet and shareholder agreement (see below)
Liquidity event refers to any event when privately-held shares (considered illiquid) can be traded such as fundraising rounds, mergers and acquisitions, or an IPO.
Liquidity preference refers to a clause protecting investors/future shareholders, by guaranteeing that in future rounds they will be able to exit and get back the value of their initial investment multiplied by a certain number. In early rounds, make sure you don’t accept anything above 1x (i.e. the initial amount invested)!
Love money is money invested very early on in a company, coming from the family and friends of (rather privileged) founders
(Startup) Mafia refers to the loose group formed by former employees of certain startups-gone-big who themselves are launching (successful) companies. The term was first used to refer to the PayPal Mafia, made of PayPal alumns who went on to build companies such as Tesla, LinkedIn, YouTube, or Yelp for instance. We now hear a lot about the Uber Mafia, the BlaBla(Car) Mafia or the Revolut Mafia amongst others.
MVP stands for “minimum viable product” and corresponds to a first version of the product a company wants to develop. It’s particularly precious to make
Non-dilutive funding is a fancy way of referring to debt.
Oversubscription or an oversubscribed round is when there are more people willing to invest, meaning more cash on the table, than initially planned. It’s a great position for founders to be in, as it means they can literally choose who gets in or not, and it often implies reducing prospective investors’ desired ticket and redefining the company’s valuation.
PEA stands for “plan d’épargne en actions” and is a French tool specifically devised to incentivise investments in startups and SMEs. It’s particularly interesting for investors, because in most cases it prevents taxes on capital gains.
Pitch refers to the high-level oral presentation of your company and fundraising goals. It should last no longer than 2-3 minutes and leave your audience with a very clear idea of what you do and next steps if they project themselves as a potential investor.
Private equity, as opposed to public equity, refers to shares of privately-held companies.
Roadshow refers to the process of fundraising, figuratively going on the road to show what your company’s worth and why you need cash.
SAFE stands for “simple agreement for future equity” and refers to a type of convertible debt that converts into equity without determining a specific price per share at the time of the investment, although there are often pre-agreed floor (minimum) and cap (maximum) levels, one a liquidity event occurs.
Smart money refers to investments made by investors with experience/knowledge/contacts particularly valuable for the company you’re building
Term sheet is a few-page-long legal document that summarises the key clauses of the shareholders’ agreement and goes through the main terms and conditions of an investment in a given fundraising round. Prospective investors technically become legally bound by it once they’ve signed it. And while it is not frequent to have business angels sign it, you should have your lead investor and all the institutional investors do so once you’ve agreed on the level of their investment.
Ticket is a fancy word to refer to an investment in a privately-held company, potential or realised. Often, on a given fundraising round, there will be a minimum ticket size and sometimes a maximum size. Furthermore, tickets will likely be in increments to simplify the cap table.
Tranches refer to pockets of investment that can be closed separately on the same terms in a given timeframe: often 3 or 6 months, and no later than 9 months, after the closing of the first tranche.
Valuation refers to the value given to a company at the moment of a fundraising round and and agreed upon by all investors. There are pre-money and post-money valuations, the former referring to the value of the company before the completion of the capital increase resulting from a fundraising round, and the latter simply calculated on the basis of the pre-money valuation to which is added the amount of the equity raised in the fundraising round. In very early rounds, when there’s often no existing product or service, nor revenue, it is hard to define an objective valuation, so the main factor that is taken into account is the level of dilution. For a first round, the level of founders’ dilution should be no more than 20%.
Let’s take an example: if you need to raise €500K in equity, you will have the following
pre-money valuation + 500K = post-money valuation
level of dilution = 500K/post-money valuation = 20% (max)
resulting in pre-money valuation = 2M; post-money valuation = 2.5M; level of dilution = 500K/2.5M = 20%
The higher the pre-money valuation, the lower the level of dilution.
Remember that valuation/dilution are not the full story: you need to be very vigilant about the overall conditions of the fundraising round. In my experience, there as an institutional investor that did not question the company’s pre-money valuation once, but wanted to impose absolutely crazy conditions on the round.
VC stands for “venture capital” as you surely know by now!