financing rounds

when to seek financing

a rule of thumb is to begin seeking when you have <=6 months of runway. If you are no longer early-stage, then 1 year.

If you are a non-early-stage startup with less than two months of runway, you should probably shut down the company [2]. It is very important that when a company dies, it does not have outstanding payroll or tax obligations, as the founders or executives could in some cases be held personally liable.

term sheets and terms

a paper that contains some tables giving examples of the impact that various terms (liquidation preference vs. none, convertible vs. participating convertible, preferred stock dividends, anti-dilution), have on outcomes: Opaque Financial Contracting and Toxic Term Sheets in Venture Capital

"outside investors"


seed round, series A, series B, etc

Selling a company (the financial and negotiation side)

Deals fall thru

"In the startup world, closing is not what deals do. What deals do is fall through. If you're starting a startup you would do well to remember that. Birds fly; fish swim; deals fall through." --

"At YC one of our secondary mantras is "Deals fall through." No matter what deal you have going on, assume it will fall through. The predictive power of this simple rule is amazing. There will be a tendency, as a deal progresses, to start to believe it will happen, and then to depend on it happening. You must resist this. Tie yourself to the mast. This is what kills you. Deals do not have a trajectory like most other human interactions, where shared plans solidify linearly over time. Deals often fall through at the last moment. Often the other party doesn't really think about what they want till the last moment. So you can't use your everyday intuitions about shared plans as a guide. When it comes to deals, you have to consciously turn them off and become pathologically cynical." --

It's important that you realize that there is a good chance that any candidate deal will fall thru at the last minute before closing (the common standard for when you can be sure that the deal involving you getting cash has closed is when the 'wire transfer hits your bank account', that is, when your bank account balance shows the cash).

This is dangerous when it comes to acquisitions because the negotiation and due diligence required to close an acquisition takes up a lot of time on the part of the founders, and it also takes a lot of calendar time, and also can sap psychological energy/focus. You have to realize that the time you spend trying to close the acquisition is an investment that may or may not pay off. In case the acquisition falls thru, you need to make sure you don't spend too much time or energy on it before closing to the extent that the rest of the business is neglected and begins to fail.

Even if the founders can keep themselves from losing focus on the business, other employees who hear about the potential acquisiton may tend to put in less effort. They may not be aware that aquisitions tend to fall thru, or may not be able to achieve rational control over their irrational hopes to be acquired, or if they are not big shareholders they may calculate that their self-interest lies in putting in less effort even given the risk of fall-thru.

Cash vs. acquirer's equity

The seller wants cash, the buyer (acquirer) generally wants to pay with their own stock.

The amount of the transaction will be greater to the extent that it is paid in stock. This is because the seller is taking more risk by accepting stock.

Diversification of investment has value ("the only free lunch in economics"), so investing a large fraction of your net worth in one company is worth significantly less to you than investing the same amount in a diversified manner; so as a seller, cash is more valuable to you than the acquirer's stock (assuming you aren't allowed to sell the stock one second after receiving it, or that the amount your getting is such a large amount relative to the company's liquidity that it would be foolish to sell it all at once). If you had this amount of money in cash, would you invest it all in this acquirer's stock? Of course not. So you must demand a premium if you are being forced to do that.

The seller is exposed to things like:

In general, stock is worth more if it comes with majority or near-majority or operational control, because if you have a large degree of control you can at least push towards preventing the company you control from committing fraud or from agreeing to an acquisition that doesn't benefit you. For this reason, your ownership interest in your own (selling) company is worth more to you than an equivalent value of shares in the acquiring company, because you have at least some control at your own company, but you will not at the acquiring company.

Case study: Bingo Card Creator

" I recently sold my first SaaS? business, Bingo Card Creator. I want to disclose how much it went for, but am prohibited from doing so by the terms of my agreement with the purchaser. Speaking generally, small SaaS? businesses are presently valued at between 2X and 3X “seller discretionary cash flow” (SDC), which is essentially “how much money could the owner extract from this, totaling profits and their salary, if they only paid absolutely necessary expenses.” BCC’s SDC can be reasonably estimated from previously published numbers. That’s all the bars I can hum. " --


Case Study: Spanish Bible app

An example acquisition story:

Candidate buyer was a public company, so before negotiating Seller looked thru the 'Acquisitions' section of previous 10-ks of the candidate acquirer. Seller used a CRM called Streak that shows you the location of people who read your emails in order to help gauge interest in the candidate buyer.

Company was a side project that made a Spanish Bible mobile phone app. Seller got 5x revenue in the end. Buyer initially offered 3.5x, Seller responded by arguing that the sale would be a strategic purchase, not just a cash flow source, because his product was an app was in the top 10 'book' apps. Then Seller asked 7x, they offered 4.5, he asked 5x, held, got it.

Mergers of equals

Sometimes two companies want to present a sale as a 'merger of equals'. This is rarely the case, so be skeptical.

Sometimes in so-called "mergers of equals" there are three things that are negotiated over:

After selling a company


Putting your name on it

One way to slightly deter outside investors from taking control away from founder(s) is to put the founder(s) names into the company's name.


seed deck:

dm8 35 minutes ago [-]

I'd like to add two more points - unit economics, and bottoms up market analysis. And these are helpful to founders, these 2 give an important insight into viability of business before you start the multi year grind in to make your business work -

Unit economics - what it'll take to make this work with healthy profit margins? This is crucial in case of online-offline startups, infra heavy products, or hardware products. May not be critical in consumer startups until they start monetizing.

Bottoms-up analysis of market - what will be your CAC (cost to acquire customers), ARPU/LTV (avg. rev per user/lifetime value) etc.

Both of these things are quantifiable and it'll answer an important Q - how much money will it take for the biz to reach whatever milestones that are decided.


fairpx 7 hours ago [-]

I’d like to add one more tip: good design. I’ve seen and designed many decks for startups and some engineers pay zero attention to design. Sure if you have insane traction or other extraordinary data points it becomes less of an issue. But the investors, like yourself, are human beings who want things to look clean, neat and be clear. Nice design doesnt mean add nice colors. It means to make it a joy to go through with visuals of your product, clear font and font color selection, consistent branding etc. don’t waste too much time on the design but do treat your deck as a product of its own.

If you need any advice, feel free to ping me.




rkagerer 9 minutes ago [-]

Good basics but the article is too much on the simple side for me.

"There are no hard and fast rules on how to categorize your expenses"

Pro tip: Loosely aligning them within recognized tax lines can help simplify things in the early days and reduce work for your accountant.


projectramo 6 hours ago [-]

The issue is forecasting revenues.

Zoom in and the issue is forecasting unit sales.

Zoom in and the issue is forecasting new unit sales.

In the example, this line does a lot of the work in the model: "Forecasting New Subscriptions (line 10). We've just entered hardcodes here for simplicity, but these could be the result of calculations related to a marketing / sales funnel"

I submit that this single assumption will carry more weight than the rest of the model, and is the most difficult to forecast.


ig1 5 hours ago [-]

Broadly speaking you should have a MQL -> SQL -> Deal model (i.e assumptions for ratios between the three) and assumptions for CPL and SQL per SDR/AE.

With these you can tie sales forecasts to marketing spend and sales hires.

Obviously these won't be perfect, but when you're off target you can see why (i.e which assumption was false) and then either try to fix it or correct the false assumption giving you a more accurate model going forward.


superice 5 hours ago [-]

Yes, that is the unknown variable. However, your costs can be steered pretty accurately in software startups through hiring and firing. This means you can easily track whether your sales are still hitting the targets you expected, and if not, how much reduction you can accept into on the costs side before you need to look into getting additional capital investments.

Edit: For existing businesses this metric is much more predictable by the way, but especially in B2B it might be obfuscated because the finance department does not know how much value has been provided for which there was not an invoice created for it yet.


jimnotgym 3 hours ago [-]

Indeed, but when your sales don't meet expectations in month one the model gives you a very strong clue as to what to cut or defer in future months. The model is not the business, it is something to measure the business against.



jimnotgym 13 hours ago [-]

Finance person here, this is a good grounding of the basics. The hardest part to take forward is working out the timing of things. A company is constantly owed and owing money, and this is the real trick to working out your funding requirements.

On top of the model every business needs an operational cash flow forecast going out say 3 months at least. For every day you enter the brought forward balance from yesterday. Then you add and subtract all of the line items of cash inflow and outflow for the day to forecast a closing can balance. It is more than possible for your financing model to show profitability and yet to be insolvent, because you are paying money out before it comes in. Like maybe a big customer pays on the 28th but payroll goes on the 25th...

Cash is king as they say, and a daily cash-flow forecast is the main tool that a financial controller would use to maximise it.



if you issue options, you may have to get a 409a:


SAFE vs. convertible notes:



55555 28 days ago [-]

Can someone please help me understand what common re-vesting schedules are for founders? Like, if I raise seed money, surely I'll have to agree to a reasonable 4-year vesting schedule. But then if I raise a series A, B, and C, do I have to agree to new vesting schedules at each raise? Will I then not fully vest until 4 years after my series C? Do I lose all my vested shares at each raise? On the one hand re-vesting seems unfair to me, but on the other hand if I were to give someone 20 million dollars I wouldn't want them to quit the next day.

Also, sometimes you hear about founders being fired by their board. In this case, are they getting fully vested or are they just leaving with the equity they had vested at that point in time?

jasonkwon 28 days ago [-]

Re-vesting schedules are all over the map.

Some amount of re-vesting is often required at Series A, but it largely has to do with how vested the founders already are. If for example they've been working on the company for only a year, the existing vesting schedule will probably be left alone. On the other hand, if they've been working on the company for multiple years and are close to fully vested at Series A, it's almost guaranteed that the Series A investor will ask the founder to re-vest some amount of shares (for the reason you describe).

Re-vesting generally does not show up again after the Series A.

If you get fired before you fully vest, whether you leave with the equity you have or all your equity is something you can negotiate as part of the vesting terms.

55555 20 days ago [-]

Thanks Jason "