The problem most founders don't see coming
For most founders, the biggest fear going into a raise is the pitch. Getting the deck right, nailing the story, surviving the Q&A. But what often derails a raise — or quietly costs founders equity, control, and leverage — isn't the pitch at all. It's the paperwork.
The legal side of raising capital is dense, jargon-heavy, and largely written by people who have done it a hundred times before. Your investors have. You probably haven't. And by the time you're staring at a term sheet, it can feel too late to ask the questions you should have asked months ago.
At our recent CDH Lunch & Learn, we sat down with Claire Thompson, Partner and Co-Head of Venture at Herbert Smith Freehills Kramer, for an honest, jargon-free walkthrough of everything founders need to understand before they raise.
The full recording of this Lunch & Learn is now live on YouTube. Whether you're preparing for your first raise or already in the process, it's worth watching end to end.
Tips every founder should know before raising:
Understand your raise structure before you talk to anyone
There are three main ways to structure a raise:
- A SAFE (Simple Agreement for Future Equity),
- Priced Equity (shares)
- Convertible Notes.
Most early-stage founders will start with a SAFE, it's simple, only a few pages long, and doesn't require agreeing on a valuation upfront. The investor puts money in now, and converts into shares at your next priced round, typically at around a 20% discount as a reward for backing you early.
The catch? The conversion calculation can get complicated especially if you have multiple SAFEs and other convertible instruments on your cap table. Model it out before you sign anything.
Your first priced round sets the tone for everything that follows
Your first shareholders' deed sets the standard for every round that follows. Whatever rights you grant in round one, future investors will expect the same and more. Rights don't go backwards.
Go in knowing what you're comfortable with and treat that first document as the high watermark of founder control.
Read your term sheet like it's already binding
A term sheet is technically non-binding, but once you sign, everyone moves based on those terms. Changing things later wastes time, money, and goodwill. If there's anything you don't understand, get advice before you sign, not after.
Know what preference shares and anti-dilution actually mean
Investors receive preference shares, not ordinary shares. The founder-friendly standard is a 1x non-participating liquidation preference. Investors get their money back first on exit, but nothing more. If the upside is bigger, they convert and participate like everyone else.
Anti-dilution clauses kick in during a down round, adjusting investor shareholdings to account for the discount. Stick to the market standard, broad-based weighted average, and you'll be fine. It's when founders accept 2x or participating preferences that things get complicated.
The ESOP dilutes you, not your investor
The ESOP pool, typically 8–10%, dilutes you, not your incoming investor. Put the cap table on the back cover of every term sheet, so everyone is clear on the maths before anything is signed.
On structure, the standard is a four-year vesting period with a one-year cliff. Employees earn nothing in year one, then vest pro rata from there.
Be deliberate about your cap table from day one
In Australia, proprietary companies are capped at 50 shareholders. Issue 30 SAFEs in a pre-seed round and you've burned through more than half before your first priced round. Be selective about who you take money from and make sure your angels are people you can actually reach, because you'll need their signatures at every future milestone.
Good cap table hygiene from day one will save you headaches later. Tools like Carta can help.
Think carefully about who you raise from, not just how much
Capital is just the starting point. The right investor brings mentorship, board guidance, networks, and even brand association. Angels, exited founders, strategic partners, celebrities, and athletes are all fair game.
Think about what your business actually needs right now, and find an investor whose experience genuinely complements it.
Start earlier than you think in your journey and in the calendar year
Raises always take longer than you think. In Australia, the market closes over summer so if you're considering raising, start now. Aim for a clear inflection point where your numbers are strong and the opportunity ahead is compelling.
And if you're on the fence about raising at all: a smaller slice of a much bigger pie is the logic. Just remember, it comes with a partner, not just a cheque.
Why this matters
Most raises don't fall apart in the pitch room — they fall apart in the paperwork. The founders who get it right are the ones who understand their structure before they start, read every document before they sign, and build a cap table they can actually manage.
Know your raise structure. Respect your term sheet. Guard your cap table. And choose your investors like the partners they are — because the right ones bring far more than a cheque.
Start early, get good advice, and go raise.
