Structuring capital for your creative business

Welcome to October’s deep dive issue, available to premium subscribers. As a reminder, the Weekly Digests sent every Friday will always remain a free publication. Premium subscribers also get access to The Stanza Pipeline, a monthly list of handpicked investment opportunities. Upgrade your subscription here or refer 3 friends to get a month of free access (your referral link below).

One of the biggest mistakes I see creative entrepreneurs make when fundraising is deciding on a valuation before getting solid traction and giving investors pro-rata ownership just because they’re [insert big name investor or person who has a huge network].

Your company’s capitalization should be a key consideration from the beginning, in addition to your creative brand strategy, growth strategy, etc. You don’t want to end up in a position where you regret diluting yourself and are putting your blood, sweat, and tears into a company you own a single digit percent of, at a valuation you’re not satisfied with.

In observing the most successful entrepreneurs, a common approach to fundraising is to hold onto as much equity as possible, especially in the early stages. The psychology behind this approach is simple: your company’s worth is determined by how much you value it. On the other side, good investors appreciate when an entrepreneur has the confidence to negotiate terms and ownership. Arguably, it also signals how much you believe in your own abilities. Bottom line: don’t be afraid to go hard on the negotiation.

By popular request, October’s deep dive serves as a comprehensive guide to various forms of financing, along with their pros & cons. Understanding fundraising mechanisms doesn’t only apply to tech companies. It applies to any entrepreneur who plans to grow their businesses alongside outside investors. Save this for the next time you’re considering a fundraise.

Table of Contents:

1. SAFE

2. Convertible Note

3. Various forms of debt

4. Crowdfunding

5. Appendix: other options worth knowing as an absolute last resort

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