YC Link: https://www.ycombinator.com/library/4A-a-guide-to-seed-fundraising
Founders should raise money when they have figured out what the market opportunity is and who the customer is
Ideally raise enough money for profitability so that you never have to raise again
It costs about $15k all-in to hire 1 engineer per month
So if you have 5 engineers and want 18 months of runway then you do
15k * 5 * 18 = $1.35m
When asked how much are you raising you are raising for N months (12 - 18 usually) and will need 500k - $1.5 million
Venture Financing
Venture financing takes place in “rounds” which traditionally have names:
- Seed
- Series A
- Series B
- etc
Most seed rounds in Silicon Valley are structured as either convertible debt or simple agreements for future equity safes
Convertible Debt
Convertible debt is a loan an investor makes to a company using an instrument called a convertible note. Loan will have a principal amount (amount of the investment), an interest rate, and a maturity date (when the principal and interest must be repaid)
The intention of the note is so that it converts to equity when the company does an equity financing. Notes will also usually have a “Cap” or “Target Valuation” and/or a discount.
Cap is the maximum valuation the owner of the note will pay regardless of the valuation of the round in which the note converts
The effect of the cap is that convertible note investors pay a lower price per share compared to other investors in the equity round
Safe
Convertible debt has been almost completely replaced by the safe at YC and Imagine K12
A safe acts like convertible debt without the interest rate, maturity, and repayment requirement
Equity
An equity round means setting a valuation for your company and thus a per-share price, and then issuing and selling new shares of the company to investors.