The 10 Ways Startups Can Raise Capital

Hey y’all 👋

This newsletter is designed to help founders build, grow, and raise capital for their startups. And it’s been growing so much (over 17,000+ founders get it each week now) that I thought it deserved a fresh coat of paint and logo.

The lightbulb was a simple, perfect image to capture that feeling founders crave — when you know you’re onto something great. My job is to help make that easier to reach and sustain.

You’ll see this new branding going forward, including on my socials.

Recently I’ve gotten questions from a few founders on what financing options are out there. Times are still tough in the venture markets and founders are exploring other opportunities.

So this week I put together a list of 10 ways startups can raise capital ↓

Read time: 7 minutes

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Startups can break down their options to raise capital by whether they’re required to give up equity in exchange for the capital (dilutive) or not (non-dilutive).

Most, if not all, billion dollar companies raise at least one round of dilutive capital so we’ll cover that first.

Dilutive Options

As even Paul Graham notes, you don’t need to raise venture capital to be considered a startup (all you need to do is be designed to grow fast).

But equity-based fundraising is still the most common tool startups use to capture a big market quickly.

SAFE

Y Combinator developed the SAFE (Simple Agreement for Future Equity) and it has become the de facto standard for pre-seeds, and often seed rounds as well (so much so that Carta even has a page on their site where the YC SAFE is the only option in a dropdown for the doc template to use).

A SAFE is an agreement that lets the investor purchase x shares at some point in the future for a price you agree to now. Usually, SAFEs the purchase gets made as part of a future fundraising round.

YC freely shares their templates for the various types of SAFEs you can use. We’ll do a deep dive on how SAFEs work in the future, but here are some terms to know:

• Pre-money vs. post-money → Two ways of describing a round. Pre-money means the value of the startup without including what’s being invested now, while post-money includes the current investment.

• Most favored nation (MFN) → Lets an investor get the same terms as later investors, if the later investor received better terms than the earlier investor did (by their judgement).

• Discount → Reduces the price per share paid by the investor. Can be a good incentive for investors joining the first tranche of a round.

• Valuation Cap → The cap is the maximum valuation the investor will have to pay for their shares at.