The Perfect PropTech Cap Table

How I would fund a startup if I were in charge

“Money in a business is like gas in your car. You need to pay attention so you don’t end up on the side of the road. But your trip is not a tour of gas stations.” - Tim Ferriss, Tribe of Mentors

This article from NextView last year about raising a seed round got me thinking about optimal fundraising strategies. This one had some good data as well.

So let’s do an experiment.

Let’s pretend I control all VCs, Angels, and RE Firms. And I can make them give me the amount of money I want when I want it.

And let’s further assume I have started a PropTech startup and I want to create the perfect cap table.

Here’s how I’d do it . . .

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Pre Revenue

(“Pre Seed”) - Just an idea or a product. You don’t have any revenue and you probably don’t have any true users.

Ideal Investors - Friends, Family, Users, (maybe Partners)

Lead Investor - None

Round Size - $250k to $500k on $2m to $5M company value. Please do not give away more than 10% of your company’s equity when you barely have a product.

Why - You have two real options here: people who trust you implicitly and people who need the product so badly they’ll invest in you building a solution. Your friends and family will give you money because they like/trust you but don’t know anything about your product or the problem.

The end-users of the product should be saying “thank goodness you are building this. I’ll use it and I’ll invest.” This doubles as both customer discovery and fundraising. Plus, if they back you they can’t back one of your current or future competitors (I call that “cap table defense”).

I also put partners here because, much like the users, there are sometimes future partners or cross-sellers that have cash to invest in you if you happen to solve a problem that they can’t/won’t solve themselves. Think of a delivery platform investing in a package locker startup. I have to mention that this is rare . . . but it does happen. So keep these people in mind. (Even if nothing comes from these investors they are still your future partners and your time is well-spent connecting with them early!)

More Context - The more users you get on your cap table here, the stronger you look to VCs, partners, and employees. Partners would be a similar positive signal.

For simplicity, let’s say you raised $250k on $2.5M post money (therefore giving up 10% of your company). In that case, you’d want to aim for $25k checks from 7 potential customers, 2 channel partners to help you sell your thingy, and your Uncle Fester.

Notice I didn’t say angels here. Most angels I know prefer to look at post-revenue startups unless you are a repeat founder who has proven she can sell in this space. More on that in the notes below.