The Exact Stage You Should Raise Capital (If You Want Better Valuation)
The stronger your foundation, the stronger your negotiation
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Introduction
One of the biggest concerns for entrepreneurs when raising capital is equity dilution.
Nobody wants to give away a big chunk of their company too early.
The truth is, the most effective way to get investors on board, while still keeping most of your ownership, is timing.
You don’t want to raise money when you only have an idea.
That’s when the risk is highest, and investors will demand a large equity stake.
Instead, you want to raise capital after you’ve built proof of concept.
Why proof of concept matters
When you can show that your product works and that there’s demand for it in the market, the conversation changes.
You don’t just have an idea, you have evidence.
Proof of concept usually looks like:
- A minimum viable product (MVP) that actually works.
- A small but loyal group of customers who are already using your product.
- Positive reviews and testimonials showing your product is reliable and solves a real problem.
When you hit this stage, you’ve already reduced the investor’s risk.
They’re not backing “just an idea” anymore—they’re backing a business that’s showing traction.
The bargaining power shift
At this point, something powerful happens:
- The investor no longer feels like they’re betting blind.
- They can clearly see the foundation of a successful business.
- The risk-to-reward ratio tilts in your favor.
And because their risk is lower, your equity dilution will also be lower.
In simple words, you can raise a meaningful amount of capital without giving away huge chunks of your company.
The investor's mindset
Investors are not against taking risks, but they prefer calculated risks.
If you walk in with:
- A working product,
- A few happy customers, and
- Evidence of demand…
…you’ll instantly stand out from entrepreneurs who only have an idea on paper.
That’s when you’ll notice investors are eager to join your journey early—without demanding too much equity.
Food for thought
If you want to protect your ownership and still raise capital:
- Don’t rush to fundraise at the idea stage.
- Focus on building, testing, and proving your product.
- Turn a handful of customers into passionate fans.
Do this, and you won’t just attract investors—you’ll attract them on your terms.
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Prompt used to create the image for the note
P.S.: Image made on Meta AI using the prompt, “Create an image of an entrepreneur making a pitch to a panel of investors. Make the entrepreneur look confident and the investors look impressed and interested”