Chapter 6: Raising Capital
Let’s start with the most traditional form of startup fundraising: the priced equity round. In a priced round, investors buy shares of your company at an agreed-upon valuation, meaning your company’s worth is formally established at the time of investment.
Here’s how it works:
The company and investors agree on a valuation—this determines how much ownership the investors get in exchange for their money.
Investors receive preferred stock, which often comes with special rights, such as dividends, board seats, or liquidation preferences.
The company goes through a formal due diligence process, which involves legal and financial reviews.
A common type of priced round is a Seed Round or Series A, where startups sell equity to venture capital firms or angel investors. Priced rounds provide clear ownership structure but require legal complexity and valuation discussions, which can be challenging for early-stage startups.
Pros:
Investors and founders know exactly how much equity is being exchanged.
Sets a market valuation, which helps with future fundraising.
Often includes experienced investors who can provide strategic guidance.
Cons:
Expensive legal and administrative costs.
Valuation negotiation can slow down the fundraising process.
Founders may have to give up more control than expected.