What are the most important pros and cons of raising funds via equity or convertible debt?

I'm both an active angel investor and entrepreneur who has recently raised capital. I'll start with what is standard in Silicon Valley and then apply various multiples and discounts where relevant. For an angel or early seed round, the current going rate is $3m-$5m pre-money via a capped note or priced round. Priced Rounds typically most often use the "Series Seed" docs and Convertible Notes typically are 18-24 month terms with a 15% discount. I don't mean to be argumentative but Marco is incorrect that valuation can be avoided by a capped note. And in general, there is no way to avoid setting a valuation except via an uncapped note, which is almost unheard of. Setting your cap and discount will have a significant impact on your cap structure, the same (and in some cases) worse than a priced round. This $3m - $5m range is what I'd call current market value in the valley for "ideation-stage" capital. This is that there is a team in place, typically some form of MVP and in some cases some very basic market data supporting the general thesis of the raise. In the other market I'm familiar with (Canada), the range for the same stage of capital is $1m - $3 with most being in between $1m and $2m and most preferring priced rounds over notes. These rounds rarely have a real lead since the raise is typically $500k or less, so if you price it reasonably, most (good) angels will accept the terms as is. The low and high end of the ranges are discounted and pushed by the credibility presented most often by the team (done it before, worked for a notable company, had some relevant success) or strong evidence of the thesis being correct. It's also the Founder's option to price the round at the top end of reasonable or provide what you might consider a discount, depending on the kind of investors you are courting. So while this is what I'm seeing as "current market conditions" there is price elasticity in any market. The best way you know if you've priced it right, is if people are buying. Any angel investor should be able to give you a conditional answer after the first meeting (subject to playing with the product, reading terms, meeting the rest of the team). Any angel investor in ideation stage capital who can't give you a yes, no or subject-to yes in the first meeting is not worth pursuing IMO. Any investor who can't close within 3 meetings or conversations won't close (9 times out of 10). Happy to talk to you about the specifics of where you're at, what might help you improve your odds and generally get you closer to the point where you're ready to raise.

It entirely depends on the kind of business you have. If you have a tech startup for example, there are pretty reliable assumptions about each round of funding. And a business plan and financial forecasts are almost totally irrelevant to sophisticated tech investors in the early stages of a company's life. Recent financial history is important if the company is already generating revenue and in that case, a twelve-month projection is also meaningful, but pre-revenue, financial forecasts in tech startups mean nothing. You shouldn't give up more than 10-15% for your first $100,000 and from that point forward, you should budget between 10-20% dilution per each round of subsequent dilution. In a tech startup, you should be more nervous about dilution than control. The reality of it is that until at least a meaningful amount of traction is reached, no one is likely to care about taking control of the venture. If the founding team screws-up, it's likely that there will be very little energy from anyone else in trying to take-over and fix those problems. Kevin is correct in that the board is elected by shareholders but, a board exerts a lot of influence on a company as time goes-on. So board seats shouldn't be given lightly. A single bad or ineffective board member can wreak havoc on a company, especially in the early stages of a company's life. In companies outside of tech, you're likely going to be dealing with valuations that are far lower, thus likely to be impacted with greater dilution and also potentially far more restrictive and onerous investment terms. If your company is a tech company, I'm happy to talk to you about the financing process. I am a startup entrepreneur who has recently raised angel and VC capital and was also formerly a VC as part of a $500,000,000 investment fund investing in every stage of tech and education companies.

Avoid buzzwords: - every founder thinks their idea is disruptive/revolutionary - every founder says their financial projections are conservative Instead: - explain your validation & customer traction - explain the assumptions underlying your projections Avoid: - focusing extensively on the product/technology rather than on the business - misunderstanding the purpose of financial projections; they exist in a pitch deck to: a) validate the founders understanding of running a business b) provide a sense of magnitude of the opportunity versus the amount of capital requested c) confirm the go-to-market strategy (nothing undermines a pitch faster than financial projections disconnected from the declared go-to-market approach) d) generally discredit you as someone who understands how to build a company; for instance we'll capture 10% of our market, 1% of China, etc. Top down financial projections get big laughs from investors after you leave the room. bonus) don't show 90% profit margins. Ever. Even if you'll actually have them. Ever. Instead: - avoid false precision by rounding all projections to nearest thousands ($000) - include # units / # subscribers / # customers above revenue line; this goes hand-in-hand with building a bottom up revenue model and implicitly reveals assumptions. Investors will determine if you are realistic, conservative, or out of your mind based largely on the customer acquisition numbers and your explanation of how they will be achieved. - highlight your assumptions & milestones on first customers, cash flow break even, and other customer acquisition and expense metrics that are relevant Avoid: - thinking about investor money as your money - approaching the pitch from your mindset (I need money); investors have to be skeptics, so understand their perspective. - bad investors; it's tempting to think that any money is good money. You can't get an investor to leave once they are in without Herculean efforts and costs (and if you're asking for money, you can't afford it). If you're not on the same page with an investor on how to run/grow the business, you'll regret every waking hour. Instead: - it's their money; tell them how you are going to utilize their money to make them more money - you're a founder, a true believer. Your mantra should be "de-risk, de-risk, de-risk". Perception of risk is the #1 reason an investor says no. Many are legitimate, but often enough it's simply a perception that could have been addressed. - beyond the pitch, make the conversation 2-way. Ask questions of the investor (you might learn awesome things or uncover problems) and talk to at least two other founders they invested in more than 6 months ago.

As Ken suggested, there is a wide breadth of mobile offerings and although there are some great "mobile only" funds, each investor / fund has their own thesis that makes them interested in some but disinterested in others. Also, if your revenue generating, you should seriously consider bootstrapping further. Revenue is treated very strangely in early-stage investing and *might* work against you. AngelList is a great way to research investors but not effective in actually connecting with them. Find investors who you are confident will be passionate about what you're doing based on prior job experience or what you know they are investing in. Happy to talk in a call to help explain this further if you need more clarity.

Stop thinking you don't have the skills to do something. You can learn anything if you decide to, but assuming up front that you can't (forever) is dangerous. my2cents