The Dime💰 Notes on Venture Capital - Part II: How to raise the money

If you read part one of "Notes on Venture Capital" you now know who the players are. You also know what their incentives are, but most importantly you know who exactly cuts the checks and who they listen to. Part two will primarily be about the process of fundraising. This is arguably the most important part of your business as you will need the cash to continue to exist if you're not already making revenue (or profitable).

Fundraising is a skill. It is a skill you need to perfect in order to survive the Startup environment. You cannot and will not be able to delegate this skill. In the early rounds (friends and family up to Series A) people will primarily be investing in you as a founder. They will scrutinize your resume, your education, your skillset, your team, and most importantly your ability to actually follow through with what you're pitching them. Anything after the initial rounds will be scrutiny about the business and its performance. Every second of fundraising will be difficult, but I'm confident that you will be fine.

The skill of fundraising is centered around your ability to clearly communicate your company, product, market, core consumer, and metrics to the proper audience. Each part of what I mentioned in the previous sentence will need to be perfect. Any slip up means a loss in potential fundraising and one step closer to potential failure to your business.

Fundraising is also a high pressure environment. The questions asked require quick and correct answers. The "right" answer is always dependent on the audience. When a term sheet is provided you need to review it quickly, decide on it quickly, raise issues quickly, get it signed quickly, and get the check quickly. One example of this is the process of Tiger Global, who would take a look at your company's stats and get you a term sheet in 48 hours. That means you have to get that term sheet to your lawyer, have it reviewed, and agree to it immediately in order to guarantee the price and funding amount that you have on that term sheet.

But a bunch of things can blow up a term sheet. Having bad legal documents typically is the biggest issue, but there's also active litigation, regulatory and compliance issues, employment issues, issues with your founding team, or simply disclosing the wrong information at the wrong time. So today I'll try to give you as much information as I can to make sure that you don't screw that up. I'll make sure that when fundraising you know what stage you're at, what a real expectation should be if you're a first time founder, what the process is going to look like, and what routes you should take as you move through the fundraising process.

Legal Structure

The first thing you need to know is that you're raising money from very serious people. If you are not a serious person or are not serious about this process, stop reading now and choose another path in life. This is not a game. This is not TikTok. This is not Instagram. This is not social media. This is real fucking life and the people handing you checks have to respond to real people with real money and real lawyers. You need to know that absolutely nobody is playing with you. No one will forgive you. No one has time for any mistakes on your end. People will tell you no, people will decide to not even hit you back. People will use their networks to tell others not to invest in you. You have very few second chances in this space. So if you're going to stand in someones face and ask for money, you better have everything in fucking order. Every. Single. Thing.

Since the people investing in you are very serious people, they will want you to have a very serious entity structure. That is where your Delaware C Corporation comes in. The Delaware C Corporation is the most litigated entity in United States history. Delaware Chancery Court is basically the Supreme Court for investor litigation. They have years and years of history in court decisions on how companies and investors should operate. You want to know how powerful investor representation is in Delaware C Corporations? Delaware Chancery Court blocked Elon Musk from getting a $56 Billion payout because investors sued him over the pay being too much.

This is why investors want Delaware C Corporations. If you approach an investor with some LLC a dude on social media told you about, they'll either tell you to get a job or simply won't call you back. Get a lawyer to draft you all of the necessary documents that go with your Delaware C Corporation filing and get on with building your company. It should cost you about $4500 to do it. If a lawyer charges you less, they're either not good at drafting the documents or are desperate and you don't want either of these issues. If an investor sees that you skimp on this, they'll just assume you'll skimp on everything else and you're simply unreliable. In short, they'll just pass on your business, no matter how "good" the idea is.

The Rounds

If you're familiar with basketball, the fundraising rounds for Startups are like creating a MyPlayer in NBA 2k but instead of starting off in college, you're starting off as a pre-teen. The rounds metaphorically are like the list below (I'll explain each metaphor for each level):

1. Friends and family round = AAU Basketball
2. Pre-Seed round = AAU/High School Basketball (Senior Year of High School)
3. Seed round = College Basketball (Freshman Year)
4. Series A round = College Basketball (Sophomore Year to NBA Draft)
5. Series B round = NBA G-League or Euro league (depending on how good you are)
6. Series C round = NBA Rookie
7. Series D and subsequent rounds = NBA player to Veteran

Once you IPO (Initial Public Offering) you're a public company so there's no more rounds to play. Once your company fails or sells, you're no longer in the game anymore.

Friends and Family Round

If you're a fan of basketball you're probably familiar with the Amateur Athletic Union, or usually said simply, AAU Basketball. If you're not familiar, its basically the league where pre-teens and high school kids play to get discovered by college scouts (outside of playing basketball for their school team). When you come up with an idea for your business this is where you start. AAU Basketball requires a large investment from your friends and family. It requires money for uniform and an insane amount of time to get dropped off at practices and games that usually are away from home. Your Startup will be no different.

Your friends and family are the first people you're going to raise money from. That's why it's called the "friends and family round." These are the people who are going to hear your about your business and give you your first checks. They're really just giving you a check because they believe in you but it's also a good indicator that you're onto something. You're going to give them a document called a Simple Agreement in Future Equity (SAFE) which basically is debt you owe them until the company reaches it's first priced round (which is usually the Series A).

This round is where you're going to use the money to do research on your market and come up with a bare-bones version one of your product. You're going to use this time and money to create a serious pitch deck. This pitch deck is going to heavily focus on the total addressable market (TAM) of your product. This will be your first pitch deck so you need to do a really good job at communicating your idea but to be quite honest it will be your worst pitch deck, so make it really really good so that every deck after that is even better. It won't be bad because you're not a good founder, it will be bad because you will only have an initial idea about your product but not enough money or resources to test it properly. So as you raise more money and do more research you'll discover that your pitch deck needs to be tweaked over and over again to fit the new discoveries you've made.

Pre-Seed Round

This round is a little more intense than your friends and family round because it will be the first time you get a check from people you don't know. To get these checks you will have to apply and be accepted to these things called "Accelerator programs" (or Accelerators, for short). These Accelerators will teach you how to build your product, how to perfect your pitch and pitch deck, better understand your market, connect you with mentors/experts, and will put you in front of potential investors who specialize in investing at the really early stage of a company's life.

Some Accelerators also invest in your company using the same SAFE document. The Accelerator terms are usually like this: "Hey, we'll give you $100,000 in $20,000 increments as you complete our Accelerator program for 5% of your company, but you'll simply owe us the $100,000 until your company reaches it's Series A round and at that point we'll just convert into your company as shareholders holding 5% of the total shares." They also usually stick additional provisions inside of their SAFE documents that say something like "Andddd if we really think your company has insane potential, we reserve the right to give you more money for up to 14% of your company when you reach your Series A round. But the price we buy into your company has to be today's price, not tomorrow's price, okay?"

Unless you're really rich, you'll take the deal. It's not the best deal, but it's not a horrible deal either. You get access to a bunch of resources that you will hold onto for the rest of your Startup career. Each introduction is valuable, so don't fuck anything up. Also, before giving you a dime, they're going to do "due diligence" which really is a company colonoscopy to make sure that you have the right legal structure. We already spoke about that and now you see why the legal documents being prepared properly are important. Because the wrong legal structure (or no legal structure) will basically blow up your chance to get the first $100,000 investment for your company.

By the time you're done with your Accelerator program, you should have, what they call, a Minimum Viable Product (MVP) which basically is a clear, decently designed version of your product which is ready to be tested in the market. You should also have a well thought out plan on how to find your first few customers, and some company based metrics to track your own progress. Some companies do only one Accelerator program because they raise so much money on the pitch day of the Accelerator that they basically just have to focus on getting to the next level. Some companies do multiple Accelerator programs because they didn't raise enough money. Where you end up in this spectrum is based on how well your product does, how much money you need to raise to figure out how to get to the next level, and how well you pitch that product to investors on pitch day.

Seed Round

This round is like your freshman year of college basketball. You're either a redshirt freshman who doesn't play yet, or you're a freshman who gets a few minutes. This is all okay, because you're still figuring your shit out. In this round, you'll be raising money from the network that is provided to you from your Accelerator program or from people you meet via the internet or at networking events/pitchfests. During this time, you'll be working on perfecting your product and matching it with the proper customer. Basically you'll be finding what they call "Product-Market Fit" (or PMF).

In short, PMF is achieved after months of surveys, customer trials, research, testing, and analysis on how people feel about your product. You're also getting your first set of customers and trying to keep them. This is still considered early-stage investing, so you'll be raising from early-stage venture capital funds and Angel Investors. They'll all still be using the SAFE document that I mentioned earlier but if you're doing a great job, you'll be able to negotiate how much equity they can get later versus having no choice like you did with the Accelerator programs.

If you're trying to talk to late-stage venture capital funds at this time, whoever you're talking to is likely going to look at you like you have five heads. Don't make this mistake. Also, when you're raising, please make sure you're raising from funds that focus on the product category that matches your product. If you're a consumer packaged goods or food company, please do not go and try to raise money from a healthcare technology focused early-stage fund. They too will look at you like you have five heads.

Series A Round

If you made it here. Congratulations. Lots of companies never make it here. It takes a long time to get here. On average, I find that it takes companies about two years to get here. As a result, most companies run out of money by the time they reach this level. But don't get gassed, you are still far away from the end of this thing. You're still considered an early-stage company. You're just an early-stage company that should be taken seriously and are actually a decent prospect.

At this level, you'll start attracting several venture capital funds, and they'll start asking for lots of documents and multiple pitches from you. They'll want to know about your legal risk, how much compliance you need to follow, if you're currently following it, if you have a lawyer, who's on your team, and what your future prospects look like. This is the type of scouting or analysis NBA teams have on college basketball players when they're considering them for the NBA draft. They want to basically know everything about you. The reason they want to know everything about you is because this is the first time you will be raising millions of dollars.

This fundraising process is very different than everything you have experienced up to this point. There will be no more SAFE documents, instead, you will be dealing with a bunch of documents. We're talking about term sheets, stock purchase agreements, right of first refusal and co-sale agreements, agreements referring to the investors rights, and a slew of other agreements. It's a decently long process because you will have to do some heavy negotiating, so make sure your lawyer is on every single call and email. You will likely have one venture capital fund who will be your "lead investor" for your Series A round. They will basically convince other venture capital funds to "follow on" or invest in your company with them which is where the millions of dollars come from. The lead investor will also ask you for a board seat in your company. This is basically when shit gets super real.

This is a priced round, so this will be the first time you will have a very real valuation for your company. The due diligence process for this will be pretty deep, so you need to make sure all your documents are clean and in order. But yours will be, because you'll be in contact with your lawyer once a week and they will make sure that they have a data room with all of your documents in it.

Your pitch decks will have to be detailed and perfect. You will have to provide detailed numbers on who you plan to hire, how you plan to market your product to your consumer, and you will have to prove to these venture capital funds that you have achieved Product Market Fit. If you fail to do this, you will blow up your Series A round, and your company will be dead. You'll be pitching every second of every day during this time. It will be exhausting. To be honest, your life should be pitching so maybe you'll be used to it by then.

After this money is raised, you will likely have the most amount of money you have ever seen in your lifetime in your business account. The very first thing you need to do is hire a Chief Financial Officer (CFO) to manage that money. This money will go to hiring, supplies, and anything else you mentioned that they money will go to in your pitch deck. The amount of cash you raise in this round, will need to last you another two and a half years. So raise as much as you can, and be as diligent as possible with the money. You're constantly in a race against cash when running a startup and if you run out of cash, you die. I have some strategies to extend that race, but I can't give you that for free lol.

Series B Round

If Series A is like getting drafted into the NBA, then Series B is akin to playing in the NBA G-League or the Euro League. At this stage, you're no longer a prospect with potential, you’re a professional with a product that works, a growing customer base, and a business model that’s starting to scale. But you’re not quite in the big leagues yet, and you’re working hard to prove you belong.

By the time you’re raising a Series B round, your startup should have achieved Product-Market Fit (PMF) and shown investors that there’s a real demand for what you’re building. You’ve got some revenue coming in, but you’re not just trying to survive anymore, you’re gearing up to thrive. This round is about growth. It’s about hiring more talent, expanding into new markets, and building out systems that will help you scale. Think of it as adding depth to your roster, hiring that specialist 3-point shooter or defensive anchor to round out the team.

Unlike the Series A round, where you were convincing investors that your company was worth taking seriously, Series B is about proving that you can execute. This is why investors in this round are less about taking risks on early-stage companies and more about betting on businesses that show they can win. Think late-stage scouts who already know you can ball but are watching to see how you stack up against tougher competition. These investors want to see traction—revenue growth, customer retention rates, and operational efficiency. They're looking for clear metrics that show your startup is on its way to becoming a dominant player in your industry.

During Series B, the focus will shift from building your product to scaling it. You’ll use this round to hire like crazy, think sales teams, marketing experts, engineers, and customer success managers. You’ll also spend money on infrastructure, like upgrading your tech stack, opening new offices, or improving your supply chain. The idea is to set up systems that can handle exponential growth. If your Series A was about proving you could score, Series B is about proving you can run a full offense and dominate the game.

The fundraising process in a Series B round will also feel different. The stakes are higher, and so is the scrutiny. Venture capital funds that invest at this stage are looking for companies that can become category leaders or industry disruptors. The due diligence process is intense. Investors will pour over your financials, customer acquisition cost (CAC), lifetime value (LTV), and your unit economics. Your pitch deck must reflect a level of polish and sophistication that matches the maturity of your business. You’re not pitching dreams anymore—you’re pitching a machine that works and needs fuel to go faster.

The amount of money raised in a Series B round is usually significantly larger than Series A, often ranging from $10 million to $50 million or more. This is the cash you’ll use to make that leap from being a promising startup to becoming a true contender. But with this money comes expectations. Your investors are no longer content with you taking baby steps; they want results, and they want them fast.

When you close your Series B, you’ll likely have a stronger board, more resources, and a clearer path to the next big milestone, Series C. But don’t get too comfortable. The G-League and Euro League are great, but the ultimate goal is the NBA. Keep your eyes on the prize, and don’t forget that the journey gets tougher from here. You’re playing with bigger budgets, bigger egos, and bigger stakes. But if you’ve made it this far, you’ve got what it takes to keep going.

Series C

If Series B was the G-League or Euro League, then Series C is your rookie season in the NBA. You’ve made it to the big stage, but you’re still proving you belong. You’re no longer a scrappy startup trying to figure things out, you’re a real business with serious revenue, a growing team, and investors who are betting on you to become an All-Star. But just like an NBA rookie, you’re not quite in your prime yet. The stakes are higher, the competition is tougher, and the expectations are sky-high.

By the time you hit your Series C round, your company has likely evolved from “early-stage startup” to “growth-stage powerhouse.” You’ve proven your business model works, shown consistent revenue growth, and demonstrated that you can execute on a larger scale. Now, you’re raising money to dominate your market, fend off competitors, and potentially expand into entirely new verticals or geographies. This round isn’t just about growing, it’s about taking over.

Investors in a Series C round are like NBA coaches and team owners. They’re not just here to help you refine your game; they’re putting big money behind you to take your team to the playoffs. They’re looking for clear signs that you’re ready to scale even further: robust financials, a clear market strategy, and the operational infrastructure to support massive growth. At this stage, investors are less interested in your potential and more focused on your results. How much revenue are you generating? What’s your profit margin? What’s your customer acquisition cost (CAC) compared to your lifetime value (LTV)? Every metric matters, and every move you make will be scrutinized.

The fundraising process in a Series C round is a whole different ballgame. You’ll be talking to late-stage venture capital firms, private equity funds, and even strategic investors, big players who don’t cut checks unless they’re convinced you can deliver a significant return. These investors are writing checks that often range from $50 million to hundreds of millions, and they’ll want detailed plans on how you’ll use that money to drive exponential growth. At this stage, you’ll likely need to work with investment bankers to manage the fundraising process and navigate the complexities of structuring deals with multiple large investors.

Your pitch decks and financial models will need to be pristine. Forget the early days of scrappy ideas and hopeful projections, this is where you bring cold, hard data. You’ll need to show a clear path to profitability (if you’re not there already) and provide evidence that your company can scale into a dominant industry leader. This means showing traction across multiple fronts: market share, customer retention, operational efficiency, and product innovation.

With the money raised in Series C, you’ll likely focus on international expansion, acquiring competitors, launching new product lines, or entering new industries. This is when you start building a dynasty, not just a team. You’ll also need to invest in senior leadership, hiring experienced executives who can help you manage the complexities of running a large, rapidly growing organization.

But remember, being an NBA rookie is tough. You’re no longer the big fish in a small pond; now you’re playing against the best of the best. The pressure is relentless, and the margin for error is hella thin. If you fumble at this stage, whether it’s mismanaging your funds, losing key customers, or failing to scale effectively—you risk losing the confidence of your investors and your shot at raising more money or an acquisition.

Closing a Series C round is a huge milestone, but it’s not the end. Whether your ultimate goal is to go public (IPO), get acquired, or continue raising funds, the grind doesn’t stop here. In the NBA, rookies who shine set themselves up for long, successful careers. In the startup world, a successful Series C round sets the stage for your company to make the leap from a growth-stage business to an industry titan.

Series D (and subsequent rounds)

If Series C is like your rookie season in the NBA, then Series D and beyond is that sweet spot in your career where you’re no longer new to the game, but you’re still proving that you’ve got what it takes to become a franchise player. You’re a sophomore or junior in the league now, experienced enough to be a key part of the team but still climbing toward that veteran status. At this point, your company isn’t just “promising” anymore. You’re raising big money to take your game to the next level, whether that’s dominating your market, expanding internationally, or preparing for the big exit that will define your legacy.

For first-time founders, this is typically where you need to start thinking seriously about acquisition. Your investors didn’t back you out of charity, they’re here for a return, and this is the round where they’ll start expecting you to deliver it. That means positioning your company to get acquired by a strategic buyer for a lot of money, usually in the high tens or hundreds of millions. If you’re a second- or third-time founder, however, you might have the industry experience and confidence to aim higher. Maybe you’re thinking about an IPO or simply reaching unicorn status ($1 Billion valuation). That’s not a small leap, but it can make sense if your company is something really special, dominating your market, gaining massive market share, or even creating an entirely new economy. Think Airbnb or Shopify-level dominance.

This is the point where you have to be brutally honest with yourself about your company’s capabilities and where it’s headed. By now, your valuation is likely sky-high. Investors and acquirers aren’t giving you this much money because they like your pitch deck, they’re expecting major results. If you’re leaning toward acquisition, your focus needs to be on attracting a strategic buyer. These are usually big companies in your space (or adjacent ones) that see your business as the missing piece to their larger puzzle. Think Google snapping up smaller tech companies to strengthen its AI capabilities, or Amazon buying up logistics startups to improve its delivery network.

The people investing at this stage are also very different from the ones you dealt with in your early rounds. You’re not talking to angel investors or seed-stage VCs anymore. Now you’re working with private equity funds, late-stage venture capital firms, and strategic buyers. Private equity firms are looking to help you scale further or prep for a sale. Late-stage VCs are betting on you to deliver a big return sooner rather than later. And strategic buyers, those corporate giants in your industry, are already imagining how you’ll fit into their broader operations. If you’re a healthcare tech company, that might mean a pharmaceutical giant like Pfizer. If you’re in consumer goods, maybe it’s Procter & Gamble. The point is, you’re playing with the big boys now, and they’re looking at you as more than just an investment, they’re looking at you as a way to strengthen their team.

If you’re planning for an acquisition, your job is to make your company as attractive as possible to those strategic buyers. That means streamlining your operations so they can integrate easily into their systems, building partnerships that align with their goals, and showing a clear path to profitability if you’re not already there. Acquirers don’t just want to buy your product—they want to buy your potential. On the other hand, if you’re aiming for an IPO, your focus needs to shift to proving that your company is ready to play on the biggest stage. You need to show that you’re dominating your market or carving out a new one entirely. Your financials need to be pristine, no sketchy accounting or unclear paths to revenue. And you’ll need to assemble a leadership team that can handle the public markets. This isn’t the time for rookie mistakes; it’s the time to show you’re ready to lead the league.

Bridge Rounds

A bridge round is a smaller round of funding designed to keep your company afloat between major rounds. Maybe you’re running out of cash faster than expected, the market conditions aren’t right for your next big raise, or you need a little extra runway to hit those key milestones that make you more attractive to investors. Whatever the reason, a bridge round is all about getting you from where you are now to where you need to be for the next step, whether that’s a Series A, B, or even an acquisition.

Bridge rounds can come in different forms, but they’re typically structured as convertible notes or SAFEs. This means the investors putting money in during the bridge round aren’t buying equity at today’s valuation. Instead, they’re agreeing to convert their investment into equity at a later date, usually during your next funding round, often with a discount or a valuation cap to make it worth their while. Think of it like signing a player with a team-friendly contract who can grow into a more valuable role later.

What makes a bridge round different from a regular funding round is the focus. You’re not trying to tell investors a grand story about how you’re going to conquer the world. Instead, you’re making a tactical pitch: “We’re doing great, but we need a little more time to close the gap.” Investors will want to know exactly how you plan to use this money to bridge the gap, whether it’s to finalize a new product, land a key customer, or grow revenue enough to justify a higher valuation in your next round.

Bridge rounds are common for early-stage companies that might have missed their original targets or need more capital to achieve Product-Market Fit. But they’re not just for companies in trouble. Even solid startups with good traction might use a bridge round to capitalize on a new opportunity, like launching in a new market or building out an unexpected feature that could change things.

The biggest challenge with bridge rounds is managing the perception. Just like a mid-season trade can sometimes signal desperation, raising a bridge round can make people wonder if your team is struggling. That’s why it’s crucial to frame the narrative correctly. You need to show investors (and your current team) that this isn’t a last-minute Hail Mary, it’s a calculated move to get to the next level.

The investors in a bridge round are usually your existing backers. These are the people who already believe in you and your business and want to protect their investment by giving you a little extra cash to succeed. Occasionally, you might bring in new investors, especially if you’re working on something exciting and they see the potential for a great deal. But make no mistake: bridge rounds aren’t about splashing headlines or raising big numbers, they’re about staying in the game.

When structuring a bridge round, you’ll need to work closely with your lawyer. There’s a lot of nuance in the terms, discount rates, valuation caps, and repayment schedules, that can make or break the deal. You want terms that are fair enough to attract investors without boxing you into a corner for your next round. Think of it like negotiating a trade deal in basketball: you’re trying to strengthen your team without giving away too much of your future.

Other Important Points for Fundraising

As you continue to fundraise there's going to be a few things you're going to hear or see over and over again. Those will be your term sheet, questions about your capitalization table (cap table), and your valuation.

The Term Sheet

In startup terms, a term sheet is the document that outlines the major points of an investment deal between you and your investors. Think of it as the blueprint for what’s about to go down. But here’s the key thing: it’s not a contract. It’s more like a handshake in writing, a set of guidelines that says, “Here’s what we’re both thinking, let’s work out the details later.”

So why isn’t it a contract? Because a term sheet isn’t binding. It’s like saying, “We’re going to play this game, and here’s how we’re going to set it up,” but no one’s signed anything that says they have to play by these rules yet. That comes later, in the actual contracts, the stock purchase agreements, investor rights agreements, and all those other thick, lawyer-heavy documents that lock everything into place. But the term sheet sets the tone. It’s your first look at what the deal will look like if you and the investors agree to move forward.

Now, let’s break down what makes up a term sheet. First and foremost, there’s the valuation, this is the number that says what your company is worth, at least in the eyes of your investors. If you’re playing this game, you better have done your homework, because this number will dictate everything else. Then there’s the amount being invested. How much money is coming in, and what will your investors get in return? That leads to another big section: the equity split, which outlines how much of the company you’re giving up for that cash.

Next up are the rights and preferences, which is basically where investors make sure they’re protected. This includes things like liquidation preferences (how they get paid if your company is sold or goes under), anti-dilution clauses (so they don’t lose out if you raise more money later), and board seats (how much say they’ll have in how you run the show). If you’re not paying attention to these sections, you could end up in a deal where you raise a ton of money but have almost no control left over your own company.

Another section is the vesting schedule, which is all about keeping you and your team locked in. Investors don’t want you taking their money and bouncing, so they’ll make sure your shares are earned over time—usually over four years with a one-year cliff. Translation: if you leave the company before the first year is up, you get nothing. It’s their way of saying, “We’re investing in you, not just your idea, so stick around.”

Valuations

Your valuation is the number that tells everyone—investors, employees, competitors, and even you—how much your company is worth. But just like a player’s stats don’t tell the whole story, your valuation isn’t the full picture of your startup. It’s part art, part science, and a little bit of whatever you and your investors can agree on.

So, how do we get to this magic number? Let’s start with the basics. A valuation is a mix of what you’ve done, what you’re doing, and what people believe you’ll do in the future. Investors look at a lot of factors when they decide how much your company is worth. The first thing they check is traction, are you putting up points on the board? This means revenue, user growth, or any metric that shows people actually want what you’re selling. The more traction you have, the easier it is to argue for a higher valuation.

Next, they’ll look at your total addressable market (TAM). This is basically the size of the opportunity you’re chasing. Are you playing in a small-town league, or are you trying to take over the NBA? A bigger market means more potential customers and more room for growth, which makes your company more valuable. Then there’s the team. Investors want to see if you’ve got an all-star roster or just a group of rookies figuring things out. A strong team with a history of execution can bump your valuation significantly.

Another big piece of the puzzle is product-market fit (PMF). This is like showing scouts you’ve mastered the fundamentals. If you’ve proven your product solves a real problem and people are willing to pay for it, you’re in a great position to negotiate. And let’s not forget competition. If you’re the only player in your space, you’ve got an edge. If the field is crowded, investors might knock your valuation down a bit because the road to domination looks tougher.

Now, here’s where things get tricky. Your valuation isn’t just about what your company is worth today, it’s about what people think it could be worth. That’s why valuations often feel inflated or, depending on the market, unfairly low. It’s a projection of future success, and everyone’s betting on whether you’ll make it.

But valuations aren’t just for investors—they matter for your employees, too. This is where 409A valuations come in. A 409A valuation is like an official stat line for your company, but it’s all about fairness. It’s required by the IRS to determine the fair market value (FMV) of your company’s common stock. Why? Because when you give employees stock options, the IRS wants to make sure you’re not giving them shares at a price that’s too low, which could lead to tax problems.

A 409A valuation is done by a third-party appraiser who looks at things like your financials, market conditions, and comparable companies. They’ll come up with a number that represents the “true” value of your stock, not the hyped-up valuation you negotiated with investors. This number is critical because it determines the price your employees will pay to exercise their stock options. If it’s set too high, employees might feel like their options aren’t worth much. If it’s too low, the IRS could call foul.

The thing to remember is that your 409A valuation is separate from the valuation you use to raise money. The number you pitch to investors is all about future potential, while the 409A is focused on what your company is worth right now. Think of it like the difference between your highlight reel and your game tape, they’re both important, but they serve different purposes.

At the end of the day, your valuation is a story you’re telling the world. It’s a reflection of what you’ve built, how big you can grow, and how much people believe in you. Whether you’re negotiating with investors or setting up stock options for your team, your valuation is the stat line everyone’s watching. Get it right, and you’re setting yourself up for a championship run.

Your Cap Table - your Company Bible

The cap table is like the Bible of your startup. It’s the ultimate reference point, the holy book that tells the story of who owns what in your company. Every share, every option, every investor, and every founder is recorded here. If you’re running a startup, this document isn’t just important, it’s sacred. It’s what investors use to decide if they’re getting a good deal, what employees look at to see if their stock options are worth sticking around for, and what you’ll rely on to make sure you’re not accidentally giving away the farm.

So, what exactly is a cap table? Short for “capitalization table,” it’s a spreadsheet (or software-managed document if you’re smart) that shows the ownership breakdown of your company. It details the shares held by founders, employees, investors, and anyone else with equity in your business. It also tracks stock options, warrants, convertible securities, and the percentage ownership each person or entity holds. In short, it’s the story of your company told through the lens of equity.

Why does it matter so much? Because equity is the lifeblood of your startup. It’s what you give to investors in exchange for funding. It’s what you use to recruit and retain top talent. It’s what you rely on to maintain control as your company grows. If your cap table is messy or inaccurate, you’re setting yourself up for disaster. Imagine sitting down with an investor, only to realize you can’t explain how much of the company you actually own. Or worse, discovering that you accidentally gave away more equity than you intended because your cap table wasn’t up to date. These kinds of mistakes can kill deals and create chaos when it’s time to exit.

This is why cap table management is crucial. As your company grows and you raise more rounds of funding, your cap table will get more complicated. Founders take equity. Employees are granted stock options. Investors get preferred shares with all kinds of rights and preferences. And each time something changes, whether it’s a new hire, a funding round, or someone leaving the company, you need to update the cap table. Keeping it clean and accurate is non-negotiable.

At first, you might think you can manage your cap table yourself. Maybe it’s just you and a co-founder, and you’ve got a simple Excel sheet tracking everything. But as soon as you bring on investors or employees, that’s no longer enough. You need to start using professional tools like Carta or Pulley to track everything and make sure you’re not dropping the ball. A clean, well-maintained cap table isn’t just a nice-to-have, it’s a sign that you run a serious, investable business.

This is also where lawyers come into play. A good lawyer is like your cap table’s guardian angel, ensuring everything is structured correctly and that you don’t make any mistakes that come back to haunt you. When you’re issuing shares, negotiating term sheets, or setting up stock option plans, your lawyer is there to make sure the details are airtight. They’ll help you draft and review the documents that affect your cap table, things like stock purchase agreements, option grants, and board resolutions, and make sure they align with what’s recorded in the cap table itself.

Lawyers also play a critical role when you’re raising money. During a funding round, investors will scrutinize your cap table to see if it matches the promises you’ve made. If your lawyer hasn’t kept things in order, you could end up in a situation where investors walk away because your ownership structure looks sketchy. Worse, if you’ve accidentally over-promised equity to someone, you might have to renegotiate deals or even buy back shares at a premium to fix the mistake.

Finally, your cap table is the backbone of every major decision you make about your company’s future. Planning to raise another round of funding? You’ll need to know how much equity you can offer without diluting yourself or your team too much. Thinking about an acquisition? The acquirer will want a clean cap table before they even think about writing a check. Considering an IPO? Your cap table will be picked apart by investment bankers and public market investors to make sure there are no hidden surprises.

In short, your cap table is more than just a spreadsheet, it’s the foundation of your company’s story. Treat it with the respect it deserves, keep it clean, and make sure you’ve got the right team (and tools) in place to manage it. If your term sheet is the playbook and your valuation is the stat line, then the cap table is the Bible that holds it all together. Don’t mess it up, because once it’s broken, it’s a nightmare to fix.

That's it for this week's edition of The Dime💰. Don't be stingy with the 🏀. Pass this to a friend.

See y'all next week for Part III.

CJB