Introduction

A Practical Overview for Founders
Launching and scaling a startup requires capital, and for most companies, outside funding is necessary. The initial capital raised is called seed funding, which helps cover essential costs like equipment, hiring, and product development. This guide provides a high-level summary of startup fundraising, incorporating insights from Y Combinator (YC) and Paul Graham’s essays on the topic.

 

Why Raise Money?

Startups, especially those aiming for high growth, often require more capital than founders can provide. While some companies successfully bootstrap, most need funding to accelerate development, acquire customers, and reach profitability. However, fundraising can be complex, time-consuming, and highly competitive.

Source: Paul Graham, "How to Raise Money"
 

When to Raise Money

Investors fund startups when they see:

• A compelling idea

• A capable team

• A large market opportunity

• Customer adoption and traction

Typically, startups should raise money when they have a working product and early traction (e.g., 10% weekly growth in users or revenue). Those without traction must focus on building and engaging users before pitching to investors.

Source: YC, "How to Raise Money"
 

How Much to Raise?

Startups should raise enough to reach their next major milestone, typically covering 12-18 months of operations.

Seed funding rounds generally range from $500,000 to $2 million
A rule of thumb: Each engineer costs approximately $15,000 per month (YC estimate)
Avoid excessive dilution—giving away 10-20% equity in the first round is reasonable, but more than 25% should be avoided.

Source: Paul Graham, "The Equity Equation"
 

Funding Options

Convertible Notes & SAFEs – Popular for early-stage funding, allowing startups to delay valuation setting.
Equity Rounds – More complex but necessary at later stages.
Crowdfunding & Alternative Financing – Platforms like AngelList, Wefunder, and Kickstarter offer additional options.
Source: YC, "SAFE Primer"with earned interest, although investors are often willing to extend the maturity dates on notes.

 

Finding & Pitching Investors
The best way to meet investors is through warm introductions. Demo Days, startup networks, and direct outreach can also be effective.

Investor Types:
Angel Investors – Invest their own money, typically in early-stage startups.
Venture Capitalists (VCs) – Invest larger amounts on behalf of funds, often requiring higher growth potential.
To secure funding, storytelling matters—founders must present a strong vision, demonstrate traction, and communicate clearly.

Source: Paul Graham, "How to Convince Investors"
 

Key Documents Needed

• One-Pager – Concise investment summary.

• Pitch Deck – 10-20 slides outlining the opportunity.

• Investment Memo – Detailed proposal (14-50 pages).

• Financial Projections – Clearly explaining growth forecasts.

YC recommends keeping fundraising documents simple and investor-friendly to avoid unnecessary due diligence delays.

Source: YC, "Fundraising Documents"
 

Closing the Deal
Use standard legal agreements like YC’s SAFE to speed up the process.
Momentum is key—once an investor commits, others follow.
Act quickly—getting signatures and funds transferred should take hours, not weeks.
Source: Paul Graham, "Handshake Deal Protocol"
 

Final Thoughts
Raising capital is a challenging but necessary process for most startups. The key to success is preparation—having a great product, early traction, a strong pitch, and a clear funding strategy.
 

For deeper insights, read Paul Graham’s essays on fundraising:

"How to Raise Money"
"The Equity Equation"
"How to Convince Investors"
Or explore YC’s fundraising resources:

YC Fundraising Library

Good luck on your fundraising journey.