OtherTo Raise or Not to Raise: Equity, Control, and the Founder’s Dilemma

As a CPA and business advisor working closely with startup founders across the Pacific Northwest, I often hear the question: “How should I fund my startup?” The answer, of course, depends on the business, the founders, and the long-term vision. But every startup needs to grapple with some version of this decision early: Should we bootstrap or seek outside funding?

In this post, we explore four major areas to help guide your funding strategy: (1) Bootstrapping vs. Venture Funding, (2) What to Include in a Letter of Intent, (3) Pre-Funding Preparation, and (4) Cap Table and Valuation Planning. These insights reflect current market conditions, especially for technology startups operating in the Pacific Northwest.

Bootstrapping vs. Venture Funding

Bootstrapping means funding your business through your own savings, operational revenue, and internal cash flow. You’re relying on discipline and efficiency to grow. Venture funding, by contrast, brings in outside investors—typically angels or VCs—to accelerate growth by injecting capital in exchange for equity.

Recent Trends:
Between 2023 and 2024, venture funding in the Pacific Northwest fell to its lowest point in five years, with Q3 2023 totaling just $920 million. That said, Q4 2024 showed signs of recovery, with funding increasing over 20% year-over-year. These shifts have made bootstrapping more attractive to some founders and have also made investors more selective.

Pros of Bootstrapping:

You retain complete control and decision-making power.
Focus stays on building a sustainable, profitable company.
Less complexity: fewer legal and reporting obligations.

Cons of Bootstrapping:

Growth may be slower without external capital.
You bear the financial risk personally.
Resource constraints can limit marketing, hiring, or product development.

Pros of Venture Funding:

Enables faster growth and product scaling.
Brings access to networks, resources, and credibility.
Can provide a cushion to experiment and iterate.

Cons of Venture Funding:

Dilution of founder ownership.
Pressure to grow quickly and achieve aggressive milestones.
Increased operational complexity and investor oversight.

The choice isn’t binary: some startups bootstrap early to achieve product-market fit, then seek funding. The key is aligning your funding strategy with your market, your team, and your appetite for control and risk.

It is hard for some founders to part ways with a portion of their company and ultimately lose control. It’s a natural instinct to want to maintain control for as long as possible. However, from a financial standpoint, the “second bite of the apple” is often the most valuable.

This adage refers to the phenomenon where the last 25% of a company that a founder sells can be worth more than the first 50%. This occurs because as companies scale, their growth accelerates—especially when more people and investors become involved. If structured correctly, this final 25% can be the most lucrative outcome for founders.

What to Include in a Letter of Intent (LOI)

Once you begin serious funding conversations, the Letter of Intent or term sheet becomes a critical step. It sets the tone and expectations for both sides before legal and financial diligence begins.

Key Elements to Include:

Valuation and Equity Structure: Clarify pre-money valuation, the amount being raised, and resulting ownership percentages. Specify preferred shares and any investor rights.
Option Pool and Equity Plan: Define how much equity will be set aside for future hires. A typical early-stage employee pool is 10-15% of total shares. Confirm whether this pool is included in the pre- or post-money valuation—it significantly affects dilution.
Cash Flow and Dividend Policies: State whether profits will be reinvested or paid as dividends. Most early-stage companies do not distribute profits. If any dividend preference is included, specify it.
Broker or Finder’s Fees: Disclose any third-party involved in securing the deal and who will be responsible for their fees.
Board Rights and Control Terms: Note if the investor expects a board seat or protective provisions. These may be negotiated later but should be outlined here.
Breakup Fee – Your job is to build the company and make it through due diligence, the investor’s job is to evaluate you and bring the money. Let’s say you do everything right, and the investor gets cold feet or does not actually “have the money” they think they have. Shouldn’t the investor pay the fees you incurred to go through the process? Answer = YES! This needs to be in the LOI. If an investor balks at this, they are either not serious and just looking to learn from you, or they don’t have the money. Move on.

A well-written LOI saves time and miscommunication. As a CPA, I often help model the dilution and ownership implications of these terms before a founder signs.

Pre-Funding Preparation

Raising capital is not just about pitching—it’s about presenting a clean, investable business. Before approaching investors, make sure the fundamentals are in place:

Financial and Operational Readiness:

Transition to accrual accounting if you haven’t already.
Prepare clean, GAAP-compliant financial statements for the past 2-3 years.
Have a reliable forecast model with assumptions clearly stated.

Legal Documentation:

Organize your cap table, equity grants, and stock option plans.
Ensure all founders and employees have signed IP assignment agreements.
Maintain an updated data room with key contracts, pitch deck, and financials.

Team Alignment:

Identify a small group to manage the fundraising process: often the CEO, CFO, advisor, and legal counsel.
Avoid involving too much of the company too early—both for confidentiality and clarity of communication.
Investors will likely want to meet key personnel, so ensure the right stakeholders are prepared.

Tell Your Story:

Craft a compelling narrative about your problem, product, market, and traction.
Align your financial model with your story. If you claim a $10B market, show how you plan to capture meaningful share.

Figure 1. Equity Ownership by Funding Round. This chart shows how equity is allocated among founders, investors, and the employee pool from Seed through Series B. Founder ownership declines as investor stakes grow and employee incentives expand to support growth.

Valuation and Cap Table Planning

Setting a valuation is as much about strategy as it is about numbers. Your valuation determines how much equity you give up for funding, and your cap table defines how future ownership unfolds.

Valuation Benchmarks:

Median seed rounds in 2024 raised ~$3.5 million, often on $8-12 million pre-money valuations.
Series A rounds averaged $10-15 million raised with valuations ranging widely depending on traction.

Cap Table Strategies:

Expect 15-25% dilution per round. Model multiple rounds in advance.
Use a bottom-up approach for option pools: define hiring plans and allocate equity accordingly.
Avoid bloated option pools that dilute founders unnecessarily.
Use tools like Carta to manage your cap table. (Primetrics is a Carta Partner – Carta is free for smaller startups)

Plan for Control:

Decide early if maintaining 51% control matters to you.
Consider how different funding paths affect your influence and governance.

Common Pitfalls:

Over-optimistic valuations that delay or derail funding.
Failing to model how convertible notes and SAFEs will convert.
Not understanding liquidation preferences and their impact in an exit.

Founders are often reluctant to give up equity, but with a clear plan, the tradeoffs become manageable. Equity is a resource. Used wisely, it can fuel the growth that creates far more value for everyone involved.

Conclusion:
Whether you choose to bootstrap or raise outside capital, the key is preparation, clarity, and intentional decision-making. As an advisor, I often remind founders: your funding strategy shapes not only your growth, but your company’s culture, risk profile, and long-term potential.

Use the data. Understand the tradeoffs. And build a financial strategy that matches your vision.

Sources available upon request. This article reflects trends current through Q1 2025 and is based on aggregated data from Carta, PitchBook, CB Insights, and professional experience supporting startups throughout the Pacific Northwest.

Find out how Adam Turco and Primetrics can support your startup by visting their website at primetrics.cpa.