Investment is money in exchange for equity. The earlier the round, the smaller the amount โ and the more expensive each percentage of equity.
Funding Rounds
| Round | Amount | Equity | Stage |
|---|---|---|---|
| Bootstrapping | 0โ50K | 0% | Idea |
| Friends & Family | 10Kโ100K | 5โ15% | Prototype |
| Angel | 50Kโ500K | 10โ20% | MVP |
| Seed | 500Kโ2M | 10โ25% | First customers |
| Series A | 2Mโ15M | 15โ25% | Scaling |
| Series B | 10Mโ50M | 15โ20% | Rapid growth |
| Series C+ | 50M+ | <20% | Global expansion |
Key Formulas
Startup valuation:
# Revenue Multiple โ most common method for SaaS
def valuation_by_arr(arr, multiple=10):
"""ARR ร multiplier. Typical multiple = 5โ15x."""
return arr * multiple
# Example: ARR $120K โ valuation $1.2M
print(valuation_by_arr(120_000, multiple=10)) # 1 200 000
Equity dilution:
def dilution(current_equity, equity_sold_pct):
"""Founder's stake after selling equity_sold_pct%."""
return current_equity * (1 - equity_sold_pct / 100)
# Seed: sold 20%, Series A: another 25%, Series B: another 20%
equity = 100
equity = dilution(equity, 20) # 80.0%
equity = dilution(equity, 25) # 60.0%
equity = dilution(equity, 20) # 48.0%
print(f"Founder's stake after three rounds: {equity:.1f}%")
Post-money valuation:
Post-money = Pre-money + Investment
Investor equity = Investment / Post-money ร 100%
Metrics Investors Care About
| Category | Metric | Good benchmark |
|---|---|---|
| Traction | User growth | >20% MoM |
| Revenue | MRR / ARR | $10K+ MRR for Seed |
| Unit Economics | LTV / CAC | >3x |
| Retention | Churn rate | <5% per month |
| Margin | Gross margin | >70% for SaaS |
def ltv_cac(avg_revenue, churn_rate, acquisition_cost):
"""LTV/CAC โ the key unit economics metric."""
ltv = avg_revenue / churn_rate if churn_rate else float("inf")
ratio = ltv / acquisition_cost if acquisition_cost else float("inf")
return {"LTV": ltv, "CAC": acquisition_cost, "ratio": ratio,
"status": "Good" if ratio > 3 else "Need improvement"}
print(ltv_cac(avg_revenue=120, churn_rate=0.10, acquisition_cost=30))
# LTV=1200, CAC=30, ratio=40.0, status=Good
When to Raise Investment
- Don’t raise without a product and first users โ nobody will invest
- Seed โ you have an MVP, 100+ users, first revenue
- Series A โ MRR $10K+, 3x+ growth over the year, clear unit economics
- Don’t sell >25% in Seed โ by Series B the founder’s stake will be too small
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