This piece is one of a series of posts by me, Rennick Palley, founder and CIO of Stratos Technologies, intended to be a primer for founders who are thinking about how to compose the capital structures of their business. This is reference content that can be applicable to any stage and business type, anywhere from pre-seed to pre-IPO.
Capital structure design is one of the most critical aspects of creating a business, particularly for high-growth, technology enabled companies. Founders are often focused on dilution — as they should be. However, an ideal capital structure can also help create value by driving outcomes over the long term. Growth businesses operate in competitive, fast moving markets that are highly reflexive*, as any experienced founder will tell you. The speed, scalability, and flexibility of capital formed around a business will define its value, and how much of it you get to keep as the founder.
Founders’ financing options are more plentiful than ever, and are very likely to continue increasing for the foreseeable future. In order to properly evaluate any option, a founder needs to thoroughly understand the pros and cons of each.
The curriculum for this series are the following:
- Principals of Debt and Equity — what are the defining characteristics of each?
- Applications of Debt and Structured Finance in Tech — examples describing various financing structures
- Capital Structure Terms Glossary — common terms and what they mean
- The New Tech Capital Structures — how evolving business models enable new financing structures
- Is Zero Dilution as good as it sounds? — zero dilution financing is becoming more popular, but what are the drawbacks?
- Rezi: a case study.
- Do you have any assets?