fundraising

Startup funding: A founder’s guide to raising startup capital

Author:

The Carta Team

|

Read time:

24 minutes

Published date:

5 January 2026

Learn more about the entire startup funding process, including the different types of startup capital, what to expect at each funding stage, and how to prepare for a successful fundraise.

Contents

Startup capital can supercharge your startup’s growth, but it’s tricky to know when to start the funding process.

Raising funds is more complex than simply pitching your idea and receiving money. Each time you take money from investors, you’re giving them a piece of ownership in your company. This dilutes your personal equity and opens the door to outside feedback and opinions. Investors can also influence marketing, hiring, and product development, especially if they have a seat on your company’s board of directors.

In this guide, we’ll cover everything you need to know about startup funding.

What is startup funding?

Startup funding, or startup capital, is the money a new company raises to launch and grow, covering its initial expenses and funding operations until it can generate its own revenue. This money covers everything from building the first version of your product and hiring your initial team to renting office space and marketing. It’s the fuel that turns a great idea into a real business—an engine powered by significant capital, with startup funding in 2024 reaching nearly $314 billion.

While startup capital is necessary for growth, the source and terms of the capital you accept will directly affect your ownership and control over the company you're building. Every dollar you take from an investor comes with expectations and a stake in your company's future.

Understanding this tradeoff is the first step in making smart fundraising decisions. The capital you raise is a tool, and like any tool, how you acquire and use it will determine your success.

What are the types of startup funding?

There are several common ways to secure funding for your startup from different types of investors, including bootstrapping, debt financing, and equity financing. The path you choose will affect your ownership and control over the company. Understanding these options is the first step toward making a strategic decision that aligns with your long-term vision. Each path has different implications for who owns and controls the company.
Funding type What it is Who keeps ownership?
Bootstrapping Using your own savings or cash flow from early sales to grow the business You keep all of it
Debt financing Borrowing money from a bank or lender that you must repay with interest You keep all of it, but you owe money
Equity financing Selling a piece of your company to investors in exchange for cash You give a portion to investors

As Jeff Bussgang, a general partner at Flybridge, explained during Carta’s Pre-Seed Fundraising Q2 2024 webinar, there are many ways to build a great business, and the venture capital (VC) path isn't the only one. Some founders may start their journey thinking they are a venture-backed company, only to realize another path makes more sense. The key is to make the right choices for your business day in and day out.

Bootstrapping, self-funding, and friends and family

Many founders start by using their personal savings or getting money from their immediate network of friends and family. This is often called bootstrapping.

Even if the money comes from a close friend or family member, it’s important to treat these investments with professionalism. You should document every investment from day one. This avoids confusion and prevents serious legal problems down the road.

Debt and alternative financing

Other funding options include debt financing, equity crowdfunding, and small business loans and grants, such as those available through the State Small Business Credit Initiative (SSBCI) and the Small Business Administration (SBA), which has seen dramatic growth in its 7(a) Loan Program’s smallest loans for diverse entrepreneurs.

While some companies explore debt financing and other funding opportunities, with government programs often backing the smallest loans—those under $150,000—for high-growth companies aiming for big scale, equity financing is the most common path.

Equity financing

Equity financing is a type of startup funding where investment firms provide capital to early-stage companies that they believe have high growth potential. In exchange for this money, the investors receive equity, or an ownership stake, in the company. This is the most common path for startups that plan to scale quickly.

What types of investors provide startup funding?

Startup capital can come from virtually anywhere, but these are some of the most common sources of financing:

Click for sound

This video is a part of Carta’s free Startup Fundraising 101 curriculum .

The types of funding structures listed above can also have various characteristics, depending on how the money is distributed or the terms and conditions of the agreement. Rounds may take shape in the following ways:

How do you find the right investors?

Funding your startup is about finding the right investors to be long-term partners, not just taking money from anyone. The best investors bring capital as well as industry expertise, a valuable network, and guidance to help you grow. Your goal is to find someone who believes in your vision and has the experience to help you achieve it. In Q2 2025, startups on Carta raised $26 billion, down 4% year over year and a staggering 54% below 2021’s peak: Overall deal activity as flagging as it is, finding that right-fit partner is more critical than ever.

You should look for investors with experience in your industry, like B2B SaaS or healthcare, and a track record of helping companies at your stage. Even with substantial dry powder available to investors, market uncertainty means you need to find partners who truly align with your vision. The most effective way to meet them is through warm introductions from trusted contacts in your network. This could be other founders, VCs, startup advisors, or your existing investors.

You can also build your network by attending industry events and participating in founder communities, such as those found within startup accelerators. You don't need to be in a major tech hub to build a strong network and find the right partners for your startup.

A walkthrough of the startup funding rounds

Now that we’ve covered the basics, we’re ready to examine the rounds of startup fundraising. Each round of funding has a different purpose and process with its own goals, investor expectations, and impact on your company’s ownership structure. Understanding this journey helps you plan for what's ahead.

Pre-seed and seed funding: Getting your company started

If you’ve identified a market opportunity, just started building a minimum viable product (MVP), or have a prototype of your product, then your company is likely in the pre-seed or seed stage.

Pre-seed and seed funding is often used to develop your good idea. Investors are essentially making a bet on the founder and the market before any product-market fit (or even a true product) is established. That means the very early investors in your company are taking on a lot of risk.

By this point, you likely have a product you can demo, but you might still need to create a user-ready MVP and conduct beta testing before you’re ready to fully launch your product in the market. This stage of startup funding can be used for a variety of a startup’s needs, including product development or expanding the team.

Click for sound

This video is a part of Carta’s free Startup Fundraising 101 curriculum .

Using convertible securities for early-stage startup funding

In contrast to a priced round, an investor in a pre-seed or seed round will typically provide cash in exchange for convertible securities, which are specific legal instruments designed for speed and simplicity in startup fundraising. Convertible notes and SAFEs are the two most common types of convertible instruments.

For a startup's very first fundraise, convertible instruments like SAFEs and convertible notes are the standard. At the pre-seed stage, these two instruments account for virtually all deals; in the first quarter of 2025, SAFEs comprised a record-high 90% of all pre-seed rounds on Carta, with convertible notes making up the other 10%.

The SAFE Fundraising 101 eBook

Your essential guide to understanding how SAFEs work in fundraising.

Download our free guide

For Amber Allen, founder and CEO of Double A Labs, using a flexible instrument was key. "Raising capital with SAFEs through Carta was a breeze," she says, noting that it allowed her to secure funding in under six weeks.

Series A funding: Building on early traction

A Series A funding round is a startup's first major institutional funding round. Around the time you’re ready to raise the Series A round, you’ll be focused on getting your product into the market, demonstrating product-market fit, acquiring customers, and generating revenue. Companies at this stage have usually developed a substantial user base and proven that they are primed for success on a larger scale with recognition and business traction in the market.

A Series A is often a priced round (where your company gets an official valuation). Early investments like SAFEs convert into equity during this round, a process that can be complex and requires careful attention to detail.

As a founder, you can expect to raise anywhere between $1 million to upward of $10 million with a Series A. According to our data, the median round size for Series A companies was $7.9 million in Q1 2025.

What sets a Series A round apart?

Institutional investors are more likely to come in during this round because they can see metrics related to revenue growth, customer acquisition cost, and lifetime value. Investors at this stage look for clear evidence of product-market fit and a solid plan for scaling.

Instead of investing capital in exchange for convertible debt or SAFEs, most investors in the Series A round want immediate ownership equity in preferred stock, with all related rights and preferences. To determine how much equity they’ll get, you’ll have to negotiate a formal valuation of your company. You’ll also have to navigate negotiating term sheets with your attorney’s help; these outline the terms of the investment and serve as the basis of the definitive legal agreements.

Series B funding: Scaling the business

The Series B funding round is all about aggressive growth. By this stage, your company has a proven business model, a significant user or customer base, plenty of traction, and a proven record of revenue growth. Investors usually come in during these later rounds to help with business development, such as executing a strategic hiring plan to scale the team, expanding into new markets, and building a strong market presence.

Investors expect to see predictable revenue and a management team capable of leading a much larger organization. Your company is now a fast-growing business with significant momentum.

Series C, Series D, and beyond: Expanding your market

Series C funding and subsequent funding rounds help expand your market reach and grow your company internally. At this stage, new growth-stage investors may sign on. These institutional investors, which can include private equity firms, typically invest larger amounts of money in more-mature companies that are a better bet to go public or be acquired for a significant amount, which make them a lower risk for investors.

These later stages are for companies that are already successful and well-established. This capital is often used to prepare for an initial public offering (IPO), acquire other companies, or expand globally.

By this point, your company’s ownership structure is very complex, with multiple classes of stock and many different investors. Investors, auditors, and your board expect institutional-grade equity management.

How much funding does your startup need?

The right amount of funding is specific to your business's needs and goals. Before you can approach investors, you need a clear picture of how much money you need and exactly how you plan to spend it. To figure out how much you need, you can start by calculating your costs, which generally fall into two main categories.

You should calculate a target amount based on your projected monthly expenses, or burn rate, for a period of at least 12 to 18 months, plus a buffer for unexpected costs. This amount should be tied to specific, fundable milestones, such as launching a product or reaching a user goal. This approach shows investors that you have a disciplined and strategic plan for the capital.

This isn't a guess, but a calculated plan for what you'll accomplish, whether that's building your product, hiring your first engineer, or acquiring your first customers. Having a thoughtful answer shows investors you've done your homework and are a responsible steward of their potential investment.

But figuring out how much money to raise can be a complex process. Raise too much money, and you risk over-diluting your ownership stake in your own company and making it difficult to raise another round at a higher valuation; raise too little, and you risk having too few resources to achieve the milestones you need to successfully raise your next round.

While a 12- to 18-month runway is often a common target, the time between funding rounds has lengthened considerably. The median startup that raised a Series A in Q4 2024 had waited 774 days (about 2.1 years) since its previous round. Given this trend, it's now more prudent to plan for a runway of at least 24 to 30 months. This plan helps you justify the amount you're asking for when an investor asks, "What will you do with my money?" It demonstrates that you're thinking strategically about how to use capital to grow the business.

As Heather Hartnett, CEO and founding partner of Human Ventures, explains during Carta’s Mastering Fundraising Strategy webinar, "You should be really realistic about how much money you need to get you to the next milestone and then probably double that." She notes that creating a new market category, for example, often takes a lot more capital than you might initially predict.

Understanding dilution

Deciding how much to raise involves a fundamental tradeoff. Raising money means giving away ownership of your company—a concept called share dilution. The impact of this dilution on a founding team’s equity is significant and compounds with each funding round. For example, after a seed round, the median founding team collectively owns 56.2% of their startup. According to a recent founder ownership report, that figure falls to 36.1% after a Series A round and to just 23% after a Series B. Dilution is also affected by factors like using pre-money vs. post-money SAFEs.

Instead of being surprised by dilution, you can plan for it.

Carta’s Scenario Modeling software removes the guesswork from this decision. It allows you to see exactly how different investment amounts and valuations would affect your ownership stake, empowering you to make better decisions before you even start talking to investors.

How should you think about valuation?

Your company’s valuation is an assessment of your company’s worth, and also a direct byproduct of two factors: the amount of money you raise and the amount of equity you’ve given up to investors. According to Carta data from Q1 2025, median dilution at seed was 18.8% across all sectors, and 17.9% at Series A, down from 20.9% a year earlier.

In the early stages, private company valuations are negotiated prices based on factors like your traction, team, market size, and investor demand.

It’s also important to understand the difference between a fundraising valuation and a 409A valuation.

Remember: Valuations are fluid. A founder may go into the fundraising process with an ideal valuation in mind, but they may need to be flexible. When negotiating your ideal valuation, your goal should be to raise enough money to reach your next phase of growth, satisfy investors, and maintain a reasonable ownership percentage.

How to prepare for your fundraise

Getting ready to raise money can feel overwhelming, especially when experts agree that founders are facing a brutal environment. These foundational steps create the roadmap that will guide you through your conversations with investors and help you avoid common pitfalls.

Chat with fellow founders

Consider reaching out to other founders and mentors who’ve had success reaching their milestones on time and securing capital. Ask them what they learned from their raise and what they would do differently if they could. Specifically, ask how they defined their milestones, how much cash they needed to reach their next round, and whether their fundraising target was on point.

Ask your attorney for advice

Your startup attorney may have guidance on what you need to do logistically to prepare for fundraising. You might need to firm up your idea from a legal or regulatory standpoint, cross-reference your product or service with competitors, or apply for patents.

Gather data and crunch the numbers

It’s critical that you have the right metrics to back up your company’s growth and profit potential. You need to be able to show investors why it’s beneficial to bet on your company and why you will be a good steward of their money by being able to explain your spending costs, estimated runway, and funding needs.

When should you raise money?

The best time to raise is from a position of strength, not desperation, which means having a clear plan for how the new capital will help you reach your next major milestone. The goal is to secure enough runway, or time to operate, to grow your business before you need to raise again. Fundraising is also a continuous process of building relationships.

You should be able to tell a story about how this investment will get you from point A to point B. The amount you raise, especially for an initial pre-seed funding round, should be directly tied to what you need to achieve specific, fundable milestones over the next 12 to 18 months.

Waiting until you’re low on cash puts you in a reactive position, which can lead to unfavorable terms, especially when experts note that venture funding is more scarce. Instead, think about fundraising when you have a clear story to tell about your progress and a compelling roadmap for the future. This proactive approach demonstrates foresight and builds investor confidence.

What documents do you need?

Before you start pitching investors, you need to have your key documents in order. Being prepared shows that you're serious and organized. For Geertjan Van Bochove, co-founder of iPiD, having a professional setup was key to building trust: "It helped us clearly show that there’s a source of truth to our investors.”

Here is a simple checklist of what you'll need:

Developing your business plan and pitch deck

A pitch deck is a short presentation that tells the story of your business. It’s your main tool for communicating your vision to potential funders for your startup. A strong pitch deck clearly and concisely answers an investor's most pressing questions about your company and its potential.

Your deck should include a few key slides that walk investors through your company's story. Think of it as a visual narrative that covers the most important aspects of your business.

What are investors looking for?

Investors evaluate your idea, you as a founder, and the overall professionalism of your operation. They are looking for signals that you have the discipline and foresight to build a successful company.

While startup metrics are important, investors are ultimately betting on three things: the team, the market, and the idea. Different types of investors want to see a compelling combination of all three.

The pitch and due diligence

The process usually begins with an initial pitch meeting where you present your deck and tell your company's story. If the investors are interested, they will begin due diligence, which is the process where they check to make sure everything you've told them is accurate. This is where your preparation pays off.

This is where having your company information organized is a huge advantage. For King, getting organized on a platform made a tangible difference. After moving her company's documents to Carta, her first investor "came back with double the original investment in a pre-seed funding round." A professional setup makes investors feel secure and streamlines the entire process. With many VCs expecting exits to increase, they are actively looking for well-prepared companies to back.

The term sheet

If due diligence goes well, an investor will present you with a term sheet. A term sheet is a document that outlines the main terms of the investment, including the valuation, investment amount, and what rights the investor will have. It's a key document that sets the stage for your partnership.

This document is the blueprint for the final legal contracts, but it is typically non-binding. It’s always a good idea to review the term sheet with a startup lawyer to make sure you understand all the terms and their implications for your company. This is a negotiation, and you should feel empowered to ask questions and discuss the terms.

Once you receive a term sheet, remember that you're looking for a long-term partner, not just the highest possible valuation. The right investor can bring much more than just money to the table, including valuable advice and connections.

Closing the round

After an investor says yes, the work isn't over. Closing is the final step where you and your investors sign all legal documents and the investor wires the money to your company's bank account. This stage can be a slow, administrative headache, involving coordination between you, your lawyers, and your new investors. Staying organized is key to a smooth closing.

Common fundraising mistakes to avoid

The fundraising journey is a learning process for every founder. Being aware of common pitfalls can help you avoid unforced errors and set your company up for success.

Manage your capital and ownership with Carta

Raising capital for your startup is a milestone, not the finish line. You use that capital to hire a team, which involves issuing stock options and managing a growing list of stakeholders. This introduces new complexities like tracking vesting schedules and complying with tax and legal requirements.

An equity management platform can help you navigate these challenges at every stage of your journey, providing a single source of truth for your company's ownership.
Company stage Founder's equity challenge How an equity platform helps
Seed and setup Raising first funds on SAFEs and issuing founder equity Generate and manage SAFEs and establish a clean, professional cap table from day one
Early growth Hiring the first employees and granting stock options Obtain compliant 409A valuations to set a strike price and issue electronic securities to new hires
Growth and scaling Raising a priced round and managing a complex cap table Model fundraising scenarios to understand dilution and streamline the deal closing process
Pre-exit Understanding potential payouts for founders and employees Run waterfall models to see how proceeds would be distributed in an acquisition or IPO