We are first time entrepreneurs and have a pre-revenue tech startup. We’re currently raising our first round of funding (pre-seed you could call it), and we’ve received some decent interest. A VC wants to know what cap we are raising at. What does this mean and how would we know? Additional information: We have a prototype and we are not incorporated.


Congrats on getting the ball rolling with your business — and generating some interest from potential customers and investors.

As to your question, when a potential investor asks about your cap, they’re referring to the valuation cap you’re setting on your convertible debt issue. That would be the maximum valuation at which this issue would be converted into equity when its term expires.

Frankly, if you aren’t even incorporated yet you might want to pause the fundraising and focus on firming up your company’s foundation. You’re off to a great start but there’s a lot more to building a business than a prototype and some cash from a VC type.

If you wish to discuss, send me a PM through Clarity for 15 free minutes.


Answered 4 years ago

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