Startup Venture Capital Assistance

Companies raising venture capital require professional books and specialized financial advice. Because Kruze Consulting only works with funded startups, we know what numbers and advice you and your investors need.

Startups with VC funding need processes and systems to regularly report on the company’s financial position. Kruze produces Monthly Financials, Burn Rate Analysis, Cash Runway Analysis, Budget to Actuals and Variance Reports that are perfect for venture capital partners and board meetings. Startup founders who have raised venture capital must have the strategic financial skills to carefully manage burn, growth, headcount and more. And founders need to be ready to raise the next round of capital when the time comes.

Kruze Consulting’s clients have raised over half a billion dollars in venture capital funding in the past 12 months alone, so we know what it takes to be ready for the next round. From the first day of our White Glove Onboarding Experience, we work to deliver accurate financial statements and to begin creating a due diligence folder where, together, we can retain important information that you’ll need during the next venture capital round’s due diligence. Startups should have rock solid financials and their diligence materials prepped before a VC meeting ever occurs. Fundraising moves incredibly fast and if you appear unprepared to the VC partner, it will affect your valuation and total capital raised. Work with Kruze, be prepared. Read our downloadable VC due diligence checklist here!

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• Bootstrapping: This is where you invest your own savings into the company
• Bank Loans
  • 2 Different Types of Bank Loans:
    • If you have not raised VC money, your bank loan will require a personal guarantee.
    • If you have raised VC money, you can raise Venture Debt with no personal guarantee.
• Other Debt Options
  • More Aggressive Debt: From places like Shopify Capital, Stripe Capital, Fundbox
  • Independent Fund or business development company lenders
• VC Investment Instruments
  • Convertible Notes
  • SAFE Notes
  • Preferred Stock
  • Common Stock

Convertible notes often referred to as “converts,” are one of the most important securities used to fund early-stage startups.

While their popularity has declined some since the introduction of SAFEs, they continue to be one of the most common types of investments raised by seed-stage companies and are often used during Series A, Series B, etc. extension rounds.

Learn more about convertible notes or convertible debt.

Preferred stock or preferred equity is a share class. Venture capitalists like to invest in preferred stock because it comes with many attractive rights and privileges vs. common stock. And those benefits make them willing to pay up and pay a higher valuation for the preferred stock.

Benefits of Preferred Stock:

• Liquidation preference - these days, it’s typically 1X. (they get their money back before Common Stock participates)
• Ability to block a big decision just by voting as a share class. 
• Redemption rights 7 to 10 years out
• Accruing Dividends (Cumulative & Non-Cumulative)
  • Non-Cumulative is more friendly to founders and employees

Preferred Stock vs. Common Stock:

• Venture Capitalists don’t invest in common stock; they invest in preferred stock.
• Common stock is typically owned by employees and the founders
• The Founders shares and Employee stock are usually in common stock
• In the beginning, the Par Value of Common Stock is very low
• Common stock will always be at a discount compared to preferred stock 

Having a well-known VC firm lead your funding round offers a lot of advantages. Top VC firms have extensive contacts throughout the venture capital ecosystem, and they’re able to encourage other firms to join in your round. Top VC firms typically can write larger checks, and they are invaluable sources of operational information for startups, since they have been through this process repeatedly.

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Cram down rounds essentially “compress” all the ownership positions of previous investors, founders, angels, and other owners of a startup. In a down round, startups offer additional shares at a lower price than the shares had sold for in a previous financing round. A cram down round is a down round in which the new financing terms may severely dilute the ownership positions of any investors that don’t participate in the cram down round.

Two and twenty is the standard fee structure that venture capital firms charge their investors. The “two” stands for the 2% management fee that’s applied against the fund’s value each year, generally for the first five years. That covers salaries, administration, and other costs to run the fund. The “twenty” applies to the percentage of profit sharing, called the “carry,” for the fund. Once the fund distributes capital back to all the investors, the fund keeps 20% of the profit earned by the fund. The remaining 80% is distributed to the investors.

Structured term sheets included that offer preferential terms to VC investors, like superior preferences, liquidity rights, or dividend or cash payment components. In the current market (August 2022), venture capital has tightened up, and startups looking for funding may find that they need money, but the startup valuation is higher than it should be. Rather than accept a down round at a lower valuation, the startups might accept a more structured term sheet to preserve their current valuation.