Capital strategy for startups and scaleups

Starting and scaling a company is an exciting but demanding journey. One of the most critical factors for success is the ability to manage capital effectively, in other words, having a capital strategy you can execute against. In this article, we'll explore what a capital strategy actually is, what you should think about when building one for your company, and some tips along the way.

Lack of capital is the single biggest challenge for most startups and scaleups.

That's why it's important to have a solid capital strategy that addresses how much capital you need, where it should come from, what it's going to be spent on, whether you'll need top-ups along the way, and how much ownership you're willing to give up each time.

Some companies choose to bootstrap, building themselves up through revenue rather than raising outside capital. That's the best path, as long as you're not in a situation with a critical race against competitors. Other companies choose to raise risk capital from investors and other sources. This article is more tailored to companies looking to raise investor capital, but several of the points apply more broadly.

There are several factors to think about when designing a capital strategy: the company's stage, the importance of different milestones, whether to share ownership with employees, and how your capital needs evolve over time. We'll look at each.

There are also pitfalls every startup should try to avoid. Don't take too much dilution early on, and avoid ending up with a lot of passive owners. Both can lead to what some investors call a "broken cap table", an unfavorable ownership structure that isn't investable. The reason is that institutional investors expect founders to still own enough to be incentivized after multiple future rounds of dilution. A rule of thumb in international investor circles: the team should own more than around 50% after a Series A round. That can be hard to pull off in a market with limited capital and weak valuations. More on that below.

If you're planning to develop the company with venture capital and raise funding across multiple phases, your business will typically fall into a venture pattern. That means a rough phased categorization of companies based on milestones reached and overall maturity. See the illustration below.

In recent years, capital sources have grown, and a "pre-seed" stage has emerged before the seed round. Rounds have also gradually gotten larger, though the last couple of years have seen some correction. The illustration is still representative of how the venture model divides companies into phases and what's expected at each point.

Source: Stanford University, San Francisco, California, US

The X-axis shows the different stages a company goes through over time. The green Y-axis represents valuation, which rises as the company matures. The red line shows risk, which declines correspondingly.

There's a saying in venture: "money buys down risk." That captures how a lot of investors think, and how valuation is a function of risk, or perceived risk. Worth keeping in mind when you're building your capital strategy.

How investors assess risk varies by company and industry. Early on, it's mostly about selling the vision, building a team, getting to MVP (Minimum Viable Product), and landing the first customers. As the company matures, the weight shifts from a bold vision to validation through data. Already at Series A, unit economics start to matter, showing the company can produce real margins at scale. That's when measuring KPIs and working systematically to improve the ones that move the needle becomes essential. The benchmarks for those KPIs at each stage vary by industry and market conditions. Too big a topic for this post, but plenty of material is out there.

When you're working out how much capital you need, it helps to think of the company in phases and set milestones for each. Pick milestones that either reduce risk in the company or increase its value (they're often the same milestones). Then think about how long it takes, and how much money you need, to hit them. Then factor in that it can take up to 6 months to raise new investor capital before you run out. Raising enough to last 12–18 months is typical. In a tough market, the longer you can stretch the capital, the better.

Example: If it takes 12 months to reach an important milestone, secure enough capital to last 18. That gives the business a buffer if it takes longer, and gives you the time to work on raising the next round.

Balancing how much to raise is something of an art. You want minimum dilution, which means raising less. But you also need enough to reach the milestone that lifts the company's valuation before the next raise. Done well, you raise across multiple rounds and gradually take less dilution each time.

How much is normal to raise at each stage, at what valuation, and how much dilution should you accept? It varies; there's no fixed answer. But it's worth thinking about. Early on, you typically take more dilution than later. The range up to Series A can be 15–25% per round. From Series B onward, 10–15% dilution is more typical in a normalized capital market.

There are several sources of capital. The best capital is the kind that comes from customers, in other words, sales. It's validating, and it has no dilution effect.

Norway has a strong support infrastructure. Early on, it's smart to match that with some investor capital so you can fund the first phase of the business. Once you've tested the idea, ideally pulled together a team, landed your first customers or market validation, and hit some critical milestones, you're better positioned to take things further, including raising capital. Innovation Norway offers various startup grants in different stages. The Research Council of Norway runs the SkatteFUNN scheme, which can refund 19% of qualifying development costs. The Research Council has other schemes too. Various municipal and regional programs vary by region. Siva has a national business garden program (næringshageprogram) with various partners offering support in regional Norway, a good place to start for many. There are also strong European programs run through the EU, though many are aimed at later stages.

Worth mentioning: there are also national and international startup initiatives, incubators, and accelerators that offer various programs to startups, including knowledge programs, advisory support, discount schemes, prizes, and, in some cases, investments.

Then there's crowdfunding, in different forms, product, loan, and equity-based. If you have a consumer product, that can be a way to secure early sales. Companies further along can consider equity crowdfunding. Different types of companies have different success rates here, and you should go in with eyes open. You suddenly have a lot of owners, a relatively public profile, and more admin to manage.

The best-known form of capital is probably securing financing from various investors. Different investor types come in at different stages. The first are often the FFF crowd, Friends, Family, and Fools. People are willing to back you at the earliest stages. Then come angel investors, who have spare capital to put in and often bring knowledge and a network. Wealthy families that invest actively are usually called Family Offices. Then there are different types of Venture Capital (VC) funds, financial risk funds. Some large corporations have what's called Corporate Venture Capital (CVC), which is strategically driven. For more mature companies, Private Equity funds provide later-stage capital and work on bigger projects with more financial engineering involved.

We'll cover investors in more depth in a separate post, especially venture capital. If you're going to raise from this type of investor, you need to understand the dynamics, what they look for, and what's required. They invest in cases that can become big, and they operate on the Power Law principle, making some bold bets. They know several investments will fail, but they're willing to take that risk as long as the upside on the winners pays back everything else. Whatever investor you're approaching, try to understand them and check whether you're a good match. It's completely normal to get a lot of "no"s when raising. It's part of the game. Not everyone is the right fit. Keep looking until you find the investor that suits you and your company.

Companies further along with revenue can consider loans of various kinds. Innovation Norway offers some favorable loans, some companies can get a bank loan, and there are providers of risk-based loans. Be careful about taking on debt before you have strong financial control. Defaulting on debt can mean bankruptcy and forced liquidation.

This is an important piece of having a well-thought-out capital strategy. By "financial instruments," we mean equity incentive schemes and investor agreements. These often connect, and unfortunately, this is an area where many companies make unfortunate choices, especially first-time founders who haven't experienced the long-term consequences of those choices.

There are different ways for investors to put capital into the company. A regular share issuance means the general meeting resolves to increase the company's share capital by issuing new shares and selling them to shareholders, so the company gets working capital. That involves setting a value on the shares, and therefore on the company as a whole.

You can also get capital quickly via convertible loans or convertible notes. In Norway, there's a standard for the latter called SLIP (Startup Lead Investment Paper), which is often the first investor instrument a company uses. The SLIP structure is built on the Silicon Valley SAFE (Simple Agreement for Future Equity) model, the most common structure used in that ecosystem for a company's first capital. See the dedicated post on SLIP here. These are instruments that can, or will, convert into shares at a future point.

There are clear advantages to SLIP. You can run it quickly, get money on the same day, and avoid having to coordinate every investor through the same time-consuming funding process. You can defer the administration and registration of the capital. You can account for it as equity. And you can postpone setting a valuation for the company.

If you postpone the valuation, you also have a much wider range of options for incentivizing key employees, advisors, and board members. You can use "sweat equity" arrangements, paying with shares instead of cash when the company is short on liquidity. In those cases, restricted share arrangements (Restricted Stock Awards) are typically used.

But you need to use all these structures carefully and know the pitfalls. Without a solid capital strategy, or if you fail to deliver on milestones, it can be painful when loans or SLIPs convert to shares, especially if you've raised a lot of capital without building corresponding value. If you give shares to contributors, those should include restrictions and buy-back rights. That helps prevent a "broken cap table", many passive owners, and small stakes for the active ones. That, in turn, makes it harder to raise more capital later.

On the other hand, if you've raised capital at a high valuation, you can no longer give away shares without tax consequences for both the recipient and the company. In that case, you turn to other equity incentive schemes. There are many options, but in the early phase, founders typically reach for the startup option scheme. It offers tax benefits for both the recipient and the company compared to the standard option scheme. Watch out for the strict criteria; there are requirements on the company, the recipient, the option itself, and the reporting.

The answer to this question has a short shelf life. We're including it anyway to give some tips to founders. Chances are, if you're reading this, you're at an early stage. Investors will argue that the capital market is tough and valuations need to come down. Buyers will pretty much always argue that.

In reality, international data and statistics show that early-stage valuations aren't significantly lower than they were at peak. Later stages, Series B and beyond, have seen valuations drop more, though those are climbing back too.

The reason is that there's a floor. If you raise too much capital at too low a valuation, you wreck the cap table from the start, and the rest of the journey becomes hard. Nobody wins from that. Smart investors who know the market and the dynamics understand this.

That said, the market is the market. There's less capital in early-stage circulation today than there was a short time ago, though it seems to be improving. It's worth noting there's still much more capital available today than a few years back. Data also shows fewer companies are actively raising. So consider this a small pep talk for any founder heading out to raise: point to international benchmarks and use that argument to secure a sustainable valuation for your company.

In other words, there's a lot to think about when designing a capital strategy.

Treat this as a milestone-based journey and break it into phases tied to milestones that reduce risk and increase value. Be smart about using different instruments at different points to land what fits your business. Minimize dilution, while balancing that against the capital you actually need.

Put strong agreements in place that keep as much ownership as possible with active owners over time.

If you're going to roll out equity incentives, try to optimize them around the desired effect, the cost to the recipient, the tax, and the risk.

Unlisted can help with capital strategy and with rolling out share and option schemes optimized for a venture path. We also offer a free consultation on whether to remove the digital share register and a solution for managing different equity incentive schemes and financial instruments. You're welcome to get in touch for a no-obligation chat.