How to raise funds for a startup: a step-by-step guide

You have a product, a handful of customers, and a list of contacts who asked to be told when you raise. You do not know how much to ask for, at what valuation, or what exactly you are signing in return. What you do know is that a mistake made now shows up at the next round, when a professional investor looks at your cap table and decides whether it is presentable.

The hard part of a first round is not finding investors. It is everything decided around them: the form of the securities issued, how many people you may legally approach, how your co-investors enter the cap table, and the clauses you accept without always measuring their reach.

This guide covers the successive funding rounds, the seven stages of the process, how dilution is actually calculated, and the trade-off almost nobody raises: direct entry for each investor, or grouping them into a dedicated vehicle.

What does raising funds for a startup actually mean?

A fundraising round consists of issuing new securities to investors in return for a cash contribution that enters the company’s equity. You are not selling your existing shares, you are creating new ones, which mechanically reduces your ownership percentage without reducing the number of shares you hold.

Raising funds means selling a share of your company

The standard operation takes the form of a share capital increase. The shareholders’ meeting votes the issuance of new shares, sets a subscription price, and investors subscribe. The applicable regime derives from Articles L.225-127 and following of the French Commercial Code, extended to the SAS by cross-reference.

The subscription price splits into two parts. The nominal value of the share, often one euro or less, adds to the share capital. The remainder constitutes the issue premium, booked separately within equity. This distinction is not cosmetic: the issue premium remains distributable under certain conditions, unlike share capital, and adjusting it during later rounds sometimes serves to rebalance positions between shareholders.

The percentage you give up depends solely on the ratio between the amount raised and the valuation agreed. On a first seed round in France, the observed range generally sits between fifteen and twenty-five percent of the share capital. Above thirty percent given up on a first round, you enter territory where subsequent rounds become difficult to structure, because you no longer hold enough room to absorb successive dilutions.

When to raise, and when not to

The right moment to raise is determined by your runway, meaning the number of months your cash position allows you to operate at a constant burn rate. Start the process while you still have nine to twelve months ahead of you. Below six months, your negotiating position collapses, and your counterparties know it.

Raising is not mandatory. A company generating recurring revenue and growing without outside capital retains a strategic freedom no funding round can give back. A round is justified when you identify a specific growth lever that only an injection of capital can activate, and when the cost of dilution stays below the value that lever creates.

Key point: a fundraising round creates new shares rather than selling yours, and your dilution depends on the ratio between the amount raised and the valuation agreed.

Funding rounds: pre-seed, seed, Series A and beyond

Each round matches a stage of maturity and attracts a different investor profile. Approaching a Series A fund with seed-stage metrics costs you three months and burns your credibility with a player you will meet again later.

Pre-seed and love money

Pre-seed comes before market proof. Subscribers are your close network, sometimes an accelerator, sometimes a business angel backing your profile rather than your numbers. Amounts stay modest and individual tickets small.

It is also the stage where structural mistakes cost the most, because they are made without advice. Bringing eight people from your personal network into the share capital of an SAS with no shareholders’ agreement creates a situation that catches up with you at the next round, without exception.

Seed: the business angel round

The seed round assumes a live product and early traction signals. Business angels play a central role here: they are typically former entrepreneurs or senior executives committing personal capital, bringing their network, and accepting a level of risk no institutional player takes at this stage.

The defining feature of this round is not the amount, it is the number of subscribers. A seed round commonly gathers ten to twenty individuals. That is precisely the threshold at which the question of the hosting structure stops being theoretical, for two reasons detailed below: managing your cap table, and the regulatory framework applicable to your solicitation.

Series A and beyond

Series A comes after product-market fit has been identified, with measurable and repeatable growth indicators. Subscribers are management companies applying a formalised analysis process, requiring structured reporting, and negotiating governance rights.

What are the stages of a fundraising round?

A fundraising round runs through seven stages:

1. Set the target amount and runway

2. Establish the valuation and the documentation

3. Build the target investor list

4. Present the project and secure expressions of interest

5. Negotiate and sign the term sheet

6. Complete due diligence

7. Sign the deeds and receive the funds

From preparation to closing

The first two stages happen before any outside contact. The amount derives from your plan: list the items the round must cover, add a safety margin, and check the total buys you at least eighteen months of visibility. An amount calculated this way holds up in a meeting. A round number chosen because it sounds right falls apart in two questions.

Documentation includes at minimum a project presentation, a financial forecast, and a data room containing your articles of association, accounts, structuring contracts and intellectual property. Preparing the data room before the first meetings, rather than after an expression of interest, changes how seriously you are taken and shortens due diligence by several weeks.

The term sheet sets out the main conditions before final documentation: valuation, amount, form of securities, governance and liquidity clauses. Its legal binding force is only partial, but in practice what you accept at term sheet stage is not renegotiated. The meaningful negotiation happens there, not at final signature.

How long a round actually takes

Expect four to eight months between the decision to raise and receipt of the funds for a first operation. The observed split places roughly one month on preparation, two to four months on meetings and negotiation, and one to two months between term sheet signature and closing.

Three pitfalls systematically extend this timeline. An incomplete data room discovered mid-due-diligence, which suspends the process while documents are reconstituted. A disagreement between founders over valuation, surfacing mid-negotiation and weakening your position. And the summer or year-end period, during which investment decisions all but stop.

Key point: a fundraising round is measured in months, not weeks, and the timeline holds or collapses on the quality of documentation prepared upfront.

How much equity do you actually give up?

Your dilution is not read off the amount raised. It is calculated from the pre-money valuation, to which the amount contributed is added to obtain the post-money valuation. Your percentage given up equals the ratio between the amount raised and that post-money valuation.

Pre-money, post-money: the calculation that decides everything

Take a company valued at two million euros before the operation, raising five hundred thousand euros. The post-money valuation stands at two million five hundred thousand euros. New subscribers therefore hold five hundred thousand divided by two million five hundred thousand, meaning twenty percent of the share capital.

The common error is dividing by the pre-money valuation, which would give twenty-five percent. A five-point gap looks modest. Across a company that will complete three successive rounds, repeating that error costs you several points of ownership at exit.

Always check in the term sheet whether the stated valuation is expressed pre-money or post-money. The same headline figure covers two different realities, and the ambiguity rarely favours the founder.

The three levers that deepen dilution without you seeing it

The option pool taken pre-money. Your investors ask for a reserve of shares for future employees, often ten to fifteen percent of the share capital. If that reserve is created before the operation, it comes entirely out of your holding. Created afterwards, it dilutes everyone. The wording changes your final ownership by several points, and it often passes unnoticed in the term sheet.

The liquidation preference. It guarantees your investors recover their investment, sometimes a multiple of it, before any distribution of sale proceeds. In a mediocre exit scenario, your ownership percentage becomes theoretical: you hold sixty percent of a company whose entire sale proceeds go to preferred holders.

Convertible instruments issued earlier. Convertible bonds and share subscription warrants signed at a previous round convert at the time of the raise, at a discount. Their conversion adds to the dilution of the current round. A founder calculating dilution without factoring in instruments issued eighteen months earlier discovers the gap on closing day.

Key point: dilution is not read off the amount raised, it is read off the pre-money valuation and what you agreed to include in it.

Should your investors enter the cap table directly?

Two options exist. Each subscriber enters your company’s share capital individually and occupies one line. Or your subscribers group into a common vehicle, which enters the share capital and occupies a single line. This decision, often made in three minutes during a first round, shapes how your company is governed for the next decade.

What happens when your business angels enter directly

A software company at seed stage gathers six hundred thousand euros from eighteen individuals, with tickets between fifteen thousand and one hundred thousand euros. Each enters the share capital directly. Eighteen lines are added to the cap table, each with a voting right, an information right, and a signature to collect.

The consequences surface at the next round, eighteen months later. Every shareholder decision requires individual notice and a quorum count across eighteen signatories, three of whom no longer answer messages. Amending the shareholders’ agreement to admit the new subscriber requires everyone’s consent. And the management company reviewing the Series A asks, before entering, for the cap table to be cleaned up, a long and costly operation the founder pays for.

None of these difficulties is theoretical. They occur across a majority of seed rounds gathered from a personal network without a hosting structure.

How grouping into a vehicle works

The principle consists of incorporating a dedicated company, usually an SAS, in which your subscribers become shareholders. That vehicle then subscribes in a single operation to your startup’s share capital. Your cap table records one line. Internal movements between co-investors, entries and exits, are handled at vehicle level without ever touching your company.

You deal with a single counterparty, designated in the vehicle’s articles of association. Identity and source-of-funds checks, what regulation calls KYC/AML (know your customer and anti-money laundering), are carried out once, at vehicle level.

The vehicle is not always carried by the founder. In the most common configuration, an experienced business angel acts as lead investor, incorporates the vehicle and aggregates subscribers from their own network. The type of structure then depends on the subscribers’ tax residence and the number of operations planned.

How many people may you approach?

The question is not only practical, it is regulatory. The European Prospectus Regulation, relayed into French law by Article L.411-2 of the Monetary and Financial Code, exempts from the prospectus requirement offers of securities addressed to fewer than one hundred and fifty natural or legal persons, other than qualified investors, per member state.

Beyond that threshold, or as soon as your solicitation takes on a public character, you enter the scope of a public offering of securities, with the documentary and regulatory obligations that follow. Public dissemination counts as much as the number: an open post on a social network does not carry the same status as a solicitation addressed individually to identified contacts.

One point deserves emphasis, because it is almost always misunderstood. A startup raising equity to support its own operations falls under ordinary company law. It does not constitute a collective investment vehicle, and the subscriber qualification constraints applicable to co-investment operations on an identified asset do not apply to it. The switch occurs only when subscribers contribute capital to acquire a specific asset, identified at the time of subscription. Confusing the two regimes leads to needlessly burdening a simple operation, a mistake we see regularly among poorly advised founders.

Key point: a direct investor occupies one line of your cap table for the life of the company, whereas a vehicle occupies a single line for the entire group.

What you sign: the shareholders’ agreement and its critical clauses

The articles of association organise how the company operates. The shareholders’ agreement organises relations between people. The second is what determines your actual room for manoeuvre.

Do you need a shareholders’ agreement from the first round?

Yes, and the cost argument does not hold against the cost of not having one. Without an agreement, your shareholders transfer their securities freely, leave the company while keeping their shares, and block a sale by refusing to follow. Drafting an agreement at the first round costs a fraction of what it costs to remediate a deteriorated situation three years later.

The four clauses that determine your room for manoeuvre

The approval clause. It subjects any transfer of securities to the prior consent of the shareholders. Article L.227-14 of the French Commercial Code expressly authorises this mechanism in the articles of association of an SAS. Without an approval clause, anyone can enter your share capital, including a competitor quietly buying out a disgruntled shareholder.

The lock-up clause. It prohibits the transfer of securities for a set period. Article L.227-13 of the French Commercial Code caps that period at ten years. It protects shareholder stability during the phase when your company is most fragile.

Liquidity clauses. A drag along obliges minority holders to sell if a majority accepts an offer covering the entire share capital. A tag along guarantees minority holders the right to exit on the same terms as the majority holder. Without a drag along, a shareholder holding two percent blocks the sale of your company.

The information clause. It sets what you must communicate, how often and in what form. Underestimated by founders, it becomes the first friction point with numerous subscribers each requesting information on a different schedule.

Key point: without an approval clause, your shareholders can transfer their securities to anyone, including a competitor.

How Overlord structures your fundraising round

Overlord does not find your investors. Overlord structures the vehicle that hosts them, produces the associated legal documentation, and handles digital onboarding along with KYC/AML checks for each subscriber.

The platform was founded by a corporate lawyer trained in Paris, London and New York. That origin explains the starting point of every file: identify the applicable legal regime before choosing a structure, not the other way around.

In practice, the engagement begins with a qualification question. Are your subscribers contributing capital to support your operations, or to co-invest in an identified asset. The answer determines the regime, the form of the vehicle and the obligations attached. Next come the subscribers’ tax residence, which guides the jurisdiction, then the number of operations planned, which determines whether a single structure suffices or whether a vehicle able to host several operations is justified.

Documentation, regulatory compliance, subscription collection and cap table monitoring are handled. You keep the relationship with your investors.

FAQ: raising funds for a startup

How much should you raise in a first round?

The amount derives from your spending plan, not from a symbolic target. Aim to cover eighteen to twenty-four months of operations, including planned hires and a safety margin. Too little brings you back to market in twelve months from a weakened position. Too much imposes a valuation your metrics do not support.

What percentage of equity should you give investors?

The range observed on a first round in France sits between fifteen and twenty-five percent. Above thirty percent given up at seed stage, structuring later rounds becomes difficult, because you no longer hold enough room to absorb successive dilutions without losing control.

How long does a fundraising round take?

Expect four to eight months for a first operation, from launching the process to receiving the funds. Preparation accounts for roughly one month, meetings and negotiation for two to four months, and the move from term sheet to closing for one to two months more.

How much does raising funds cost a startup?

The main items are drafting the legal documentation, registry fees linked to the amendment of the articles of association, and where applicable the structuring of a hosting vehicle for your subscribers. The gap between configurations is wide: an operation with two subscribers and one with twenty do not mobilise the same work.

What is the difference between a convertible instrument and a share capital increase?

A share capital increase brings subscribers into the share capital immediately, which requires setting a valuation, negotiating an agreement and completing registry formalities. A convertible instrument defers those steps: subscribers contribute the funds immediately and become shareholders later, at a subsequent round, at a discount negotiated in advance.

How many people may I approach for my round?

The European Prospectus Regulation, relayed by Article L.411-2 of the French Monetary and Financial Code, exempts from the prospectus requirement offers addressed to fewer than one hundred and fifty persons other than qualified investors, per member state. The public character of the solicitation counts as much as the number: open dissemination changes the qualification of the operation.

Should my business angels enter directly or through a vehicle?

Below five subscribers, direct entry remains manageable. Above ten, grouping into a common vehicle simplifies governance, reduces the number of signatures to collect, and presents a readable cap table to investors at the next round.

What happens to my cap table at the next round if I have eighteen shareholders?

Every shareholder decision requires notice and a quorum count across eighteen people. Amending the agreement requires their consent. A management company reviewing your Series A will generally ask for that cap table to be simplified first, an operation you fund and that takes several months.

Do I need a shareholders’ agreement from the first round?

Yes. Its absence produces irreversible situations: free transfer of securities to a third party, a departing co-founder keeping their shares, a minority holder blocking a sale. Remediating afterwards costs considerably more than drafting the agreement at the right moment.

Can foreign investors join the same vehicle as my French investors?

It depends on their tax residence. A predominantly French base points towards a French structure. A multi-residence base often calls for a jurisdiction offering tax transparency and a broad network of bilateral treaties. The presence of US taxpayers, however, requires a separate structure, never to be mixed with the main vehicle.

Conclusion

Raising funds requires mastering three dimensions at once. The commercial dimension, which determines your ability to convince. The financial dimension, which sets the valuation and measures your real dilution. And the legal dimension, which decides what you sign and how your investors enter the share capital.

The first two are extensively documented. The third is often settled under pressure, days before closing, even though it governs how your company operates for years afterwards.

The question to settle before any commitment stays the same: do your subscribers enter the share capital individually, or through a common vehicle. Answering it early spares you a costly remediation at the moment you will have the least time to handle it.