Fundraising basics
In one sentence
Raising money means selling part of your company. Understand the terms before you sign.
The simple version
Investors give you money in exchange for a share (equity) of your company. The deal is written in a 'term sheet'. Two things matter most: the economics (how much money, at what valuation, who gets paid first) and control (who gets to make big decisions).
Why it matters
Bad terms can cost you your company or most of the payout, even if the business does well.
How to do it
- 1Decide if you need outside money at all — many businesses don't.
- 2Learn the key terms: pre-money valuation, dilution, liquidation preference, board seats.
- 3Raise enough for 18–24 months to hit clear milestones.
- 4Talk to several investors to create options.
- 5Get a startup lawyer to review the term sheet.
Real-world example
Raising £500k at a £2m pre-money valuation gives a £2.5m post-money valuation, so investors own 20%.
What the books say
In most deals only two things really matter: economics and control. Everything else is detail.
Common mistakes
- Focusing only on valuation and ignoring control terms.
- Raising too little and running out mid-plan.
- Spending months fundraising instead of building.
Questions people ask
What's dilution?
When new shares are issued, everyone's percentage gets smaller. You own less of a (hopefully) more valuable company.
What's a liquidation preference?
It decides who gets paid first, and how much, if the company is sold. It can matter more than valuation.
References
- [1]
- [2]
More books on this in the library
Equity: Why Employee Ownership Is Good for Business
By Corey Rosen, John Case, and Martin Staubus (2005, Harvard Business Review Press), this book makes the research-backed case that broad-based employee ownership — stock options, ESOPs, profit sharing — improves both company performance and employee outcomes.
Venture Capital and the Finance of Innovation
By Andrew Metrick and Ayako Yasuda (2010, 2nd/3rd editions, Wiley), this textbook covers the mechanics and economics of venture capital — how funds are structured, how deals are valued, and how VC returns actually work.
Founder's Pocket Guide: Startup Equity
By Stephen R. Poland (2015, 1x1 Media), this short reference guide explains how startup equity works in practice: cap tables, vesting, dilution, and option pools, aimed at first-time founders making early equity decisions.
Who: The A Method for Hiring
Geoff Smart and Randy Street's systematic approach to hiring top talent. Essential for founders who need to build great teams but haven't hired much before.
Build: An Unorthodox Guide to Making Things Worth Making
A practical startup and product-building book by Tony Fadell that shares hard-won lessons from building world-changing products at Apple, Nest, and other ventures. It covers how to go from idea to product, lead teams, navigate investors, and make products that truly matter—highly relevant for startup founders learning to build and ship things people love.
The Only Real Estate & Rental Property Investing For Beginners Book You'll Ever Need
A beginner-focused book on real estate and rental property investing that covers closing initial deals, managing properties, and building financial freedom. While useful for aspiring real estate investors, it is an investing guide rather than a general startup-founders book about building and scaling startups across industries.