FAQ

Typically 15-25% in a seed round. Most seed rounds raise $1-4M at $5-15M pre-money valuations, resulting in this range. The exact percentage depends on how much you need, market conditions, and your negotiating leverage. Remember: it's better to own 80% of a successful company than 95% of one that fails due to underfunding.

Dilution happens when new shares are created, reducing your percentage ownership. If you own 50% (5M of 10M shares) and 2.5M new shares are issued to investors, you now own 40% (5M of 12.5M shares). Your number of shares stays the same—the percentage changes because the total increased.

Pre-money is your company's value before the investment. Post-money is after. If you raise $2M at $8M pre-money, your post-money valuation is $10M, and the investor owns 20% ($2M / $10M). The formula: Post-money = Pre-money + Investment.

A capitalization table (cap table) tracks who owns what percentage of your company. It lists all shareholders—founders, employees with equity, and investors—along with their share counts, share types, and ownership percentages. It's the source of truth for ownership.

Yes, investors typically require a 10-15% option pool for future hires. The key question is whether it's created pre-money or post-money. Pre-money pools dilute founders more (it's part of the valuation); post-money pools dilute everyone equally. Most investors want pre-money pools.

Common stock is what founders and employees hold. Preferred stock is what investors get—it has special rights like liquidation preference (getting paid first in an exit), anti-dilution protection, and sometimes board seats. In a successful exit, preferred usually converts to common.

Start when you have 6-9 months of runway remaining. Fundraising typically takes 3-6 months, and you want to negotiate from strength, not desperation. If you have 12 months runway, start at month 6. If you have 18 months, you can wait until month 9-12.

Both delay valuation until a priced round. SAFEs are simpler—no interest, no maturity date, 5-page document. Convertible notes are debt—they accrue interest (2-8%), have a maturity date (12-24 months), and are more complex. SAFEs are now standard for most early-stage raises.

A valuation cap is the maximum price at which a SAFE or convertible note converts to equity. If you have a $5M cap and raise your next round at $10M valuation, your SAFE investors convert at the $5M cap (getting more shares). It protects early investors from excessive dilution if you raise at a high valuation.

Best to worst: 1) Warm intros from portfolio founders, 2) Intros from other founders, 3) Intros from mutual connections, 4) Accelerator programs, 5) Cold outreach. Build a target list of 50+ investors, tier them by fit, and work your network for warm intros to your top choices.

Typical timeline: Pre-seed: 2-4 months. Seed: 3-6 months. Series A: 4-8 months. This includes preparation, meetings, due diligence, and closing. Add 50% buffer for realistic planning. Market conditions and your traction significantly affect timing.

3:1 or higher is considered healthy. This means you earn $3 in customer lifetime value for every $1 spent acquiring them. Below 1:1 means you're losing money on each customer. Above 5:1 might mean you're under-investing in growth.

MRR (Monthly Recurring Revenue) is your predictable monthly subscription revenue. ARR (Annual Recurring Revenue) is MRR × 12. Use MRR for early stage and internal tracking; use ARR when you're past $1M and talking to investors. They measure the same thing at different timeframes.

Depends on your segment. SMB: <3% monthly is acceptable, <2% is good. Mid-market: <2% monthly. Enterprise: <1% monthly. Remember, monthly churn compounds—3% monthly = 31% annual. Net revenue retention above 100% means expansion exceeds churn.

Burn rate is how fast you spend cash. Net burn = expenses minus revenue. If you spend $150K/month and earn $50K in revenue, your net burn is $100K/month. Runway = Cash / Net Burn Rate. With $1.2M cash and $100K burn, you have 12 months runway.

Growth Rate + Profit Margin should equal or exceed 40%. A company growing 60% with -20% margins hits 40%. A company growing 20% needs 20% margins to hit 40%. It balances growth and profitability—investors use it to evaluate SaaS health.

Bookings are contracts signed (e.g., $120K annual contract = $120K booking). Revenue is recognized over time ($120K contract = $10K/month revenue over 12 months). Bookings are a leading indicator; revenue follows. Investors care about both.

NRR measures how much revenue you keep from existing customers, including expansion. If a cohort that paid $100K last year pays $110K this year, NRR is 110%. Above 100% means expansion exceeds churn. Top SaaS companies have 120%+ NRR.

CAC Payback = CAC / (Monthly Revenue per Customer × Gross Margin). If CAC is $2,000, monthly revenue is $200, and gross margin is 80%, payback = $2,000 / ($200 × 0.80) = 12.5 months. Under 12 months is excellent; under 18 is acceptable.

It depends on stage and role. Early employee (first 10): 0.5-2%. Post-seed: 0.1-0.5%. Post-Series A: 0.01-0.25%. Senior roles get more. Use our Equity Calculator to value any offer. Remember: equity is worth $0 until an exit, and most startups fail.

Vesting is earning your equity over time. Standard is 4-year vesting with 1-year cliff. You own 0% until month 12 (the cliff), then 25% vests immediately, and the remaining 75% vests monthly over 36 months. Leave before the cliff = 0 equity.

ISOs (Incentive Stock Options) have tax advantages—you may owe no tax until you sell, and gains may qualify for long-term capital gains. NSOs are taxed as ordinary income when exercised. ISOs are only for employees; NSOs can go to contractors and advisors.

Consider: 1) Do you believe in the company's future? 2) Can you afford the exercise cost + taxes? 3) How long until a potential exit? ISOs must be exercised within 90 days of leaving. Exercising early can reduce AMT impact but risks losing money if the company fails.

A 409A is an independent appraisal that sets the fair market value of common stock for tax purposes. It determines your option strike price. A lower 409A means a lower strike price, making options more valuable. Companies must update 409A annually or after significant events.

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