The Founder's Handbook - Internal vs External Funding Rounds

Rajinder Balaraman
MANAGING DIRECTOR
Vikram Vaidyanathan
MANAGING DIRECTOR
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THE FOUNDER’S PLAYBOOK: INTERNAL FUNDING ROUNDS

Internal or pre-emptive funding rounds are a major topic on founders' minds. Internal rounds refer to financing events where a company's existing investors, rather than external new investors, provide additional capital. They can signify confidence from current investors in the company's potential and can help maintain momentum without the complexities of bringing in new stakeholders.

If you’re a founder, internal rounds can be a complex decision to make with several variables to consider. To help, Vikram Vaidyanathan & Rajinder Balaraman weigh up the pros & cons of internal or pre-emptive funding rounds on Matrix Moments.

👉Valuation-Dilution trade-offs are inevitable - Both the founders and investors make trade-offs during pre-emptive rounds, requiring nuanced decision making.

👉The stability of internal interest - An existing investor is likely to have the highest intent in terms of new investment commitment.

👉Efficiency of internal funding - It is the fastest process with the least capital dilution.

👉Price advantage of external funding - The wider discovery process can lead to higher price if there’s very high interest in the market.

👉Criticality of external validation - An external round is a crucial as a validation of TAM, quality of the team and the business model.

If you are a founder thinking through fund-raising choices, this episode of Matrix Moments is for you.

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