The Essence of Raising Money (1)

Institutional investment can be a game-changer for founders and CEOs, offering the capital and resources needed to fuel growth and realize ambitious visions. Some may view it as a double-edged sword that comes with profound implications for your company’s future. Whether you’re considering a minority or majority stake from venture capitalists (VC) or private equity firms (PE), the decision to accept institutional money is not one to be taken lightly. It’s a transformative step (rather than transactional) that will reshape your company’s trajectory, operational dynamics, and potentially your role within the organization you’ve built.

The influx of institutional capital brings with it a new set of stakeholders, expectations, and pressures. You’ll be thrust into a world of accelerated growth targets, introduced to new reporting processes, rigorous performance metrics, and heightened scrutiny. Your once-autonomous decision-making process may now involve board approvals and investor consultations. The very culture of your company could shift as you navigate the delicate balance between maintaining your founding vision and meeting investor expectations.

While the potential rewards are substantial — access to new networks, market exposure operational best practices, and the fuel for rapid scaling — they come at the cost of diluted ownership and shared control. You’ll need to adapt to a new reality where your investors’ timeline for returns may not always align with your long-term vision for the company. The pressure to deliver can be intense, often pushing you towards rapid growth at the expense of sustainable practices (and much needed sleep).

Yet, for many, this pressure cooker environment is where true innovation thrives. Iron sharpens iron I always say! The right institutional partner can provide not just capital, but also invaluable guidance, industry connections, and operational expertise that can elevate your company to new heights. The key lies in understanding what you’re signing up for, carefully vetting potential investors, and ensuring alignment on core values and long-term objectives. For example, the one with the highest offer, may not be the best fit. It’s important to be strategic and ask key questions* before getting too far down in the process. And copious note taking is critical as you vet your next capital partner.

As you stand at this crossroads, poised to potentially alter the course (for the better) of your company’s future, arm yourself with knowledge. Understand the nuances of different investment types, the motivations driving your potential investors, and the implications for your role and your company’s future. With careful consideration and the right partnership, institutional investment can be the catalyst that propels your vision from ambitious startup to industry leader.

10 Crucial Considerations for Founders and CEOs

1. Be clear on why you need the money: If you’re at this stage of considering or even entertaining calls from investors, then you should be CRYSTAL clear on why you need the money and how you will invest it. Do you need to invest in sales? Upgrade leadership? Expand the product? Acquire competitors? You should have taken months, had numerous sit-downs with your current board and mentors before you decide to go down this path. There’s cases to be made to go it alone, especially if the financial fundamentals are sound. In this highly unpredicatable world, make sure you can back-up the reasons why taking the money is a good bet. Have it writing, beat it up, get input, make the decisions. (This site provides a perspective supporting bootstrapping vs taking VC/PE money).
2. Dilution and Control: Understand how the investment will affect your ownership stake and decision-making power. Majority investment means control. You need to clearly understand terms like Multiple on Invested Capital (MOIC), hurdle amount and liquidation preference. I would ask, what’s a reasonable return on MOIC? Is it 3–4x or higher? If you’re rolling equity, then you need to treat that as an actual cash investment and participate alongside the PE/VC on an exit. (This usually means your shares are Class A preferred.)
3. Investor Expectations: Be clear on growth targets, exit timelines, and reporting requirements. Ensure your long-term goals for the company align with your investors’ expectations. This may include incentive payouts based on reaching milestones that should include many of your key people. I would never aim or commit for the most aggressive targets. If something can happen, it will happen and markets change quickly. Note that your new investors will have aggressive reporting requirements which usually mean a monthly update and a highly structured board deck with deep financials. You will dedicate significant time prepping for both, so having a clear understanding on reporting requirements upfront is critical.
4. Exclusivity and customer calls: Press hard on keeping the exclusivity period to 30 days. Unless your data is disorganized, you should be able to give the potential investor the necessary data for them to continue with their due diligence or step away. Never let them make customer calls within the 30-day period as it can be disruptive to your customer base.
5. Operational Change: Prepare for a shift towards more professional management practices and heightened focus on KPIs. The new investors will benchmark other companies best practices across their portfolio and experience.
6. Cultural Impact: Consider how the investment might affect your company’s culture. Prepare a list of FAQ’s* ahead of time and be HIGHLY communicative with your leadership team and the company. As the path and decision on your new investor is becoming clear, the frequency of the communication should increase and keeping your leadership team on message is critical.
7. Legal Implications: Review proposed investor rights carefully, including veto powers and preferences in future rounds. It is important to have a seasoned legal team with deep M&A expertise on your side as it is certain the new investors will have theirs.
8. Leverage “the done it before” Advisors: Have someone(s) that you can confer with as often as necessary through due diligence. These are usually CEO’s who have gotten acquired AND exited so they have experience across the entire end to end process. Talk the CEO’s and former founders of other portfolio companies that are part of the new investor’s fund. Talk to these people, as many as you can, and do not just email. Prepare a list of critical questions.* Keep them around after the investment.
9. Reflect on this (potential) relationship: Shortly after the LOI’s are in hand and especially before you consummate transaction, based on all of your research, discussions, interactions etc, take time to reflect multiple times on what your life will be with this new institutional investor. Reflect on how your role and that of others on your team might change and whether you’re prepared for that shift. What are your instincts telling you? What are your advisors telling you? Trust them both.
10. Equity deal structure: Good CEO’s will not only think about their outcome, but those of the people that help him or her get there. Two suggestions:

• If there is an existing employee equity plan in place (eg stock options), then, in my opinion, it is critical that those shares roll into the new company versus being wholly cashed out. Liquidating a minority percentage is justifiable especially for the founding team. Communicating the new value of those shares and keeping everyone focused on the company’s True North and what success will like is the job of the CEO.
• Negotiate an incremental pool of money against reasonable targets. Most investments are measured on a return on MOIC which averages ~3.5x. I would suggest adding a point (1%) for every incremental increase in the MOIC that is then distributed to your leadership team and key people at exit. I’ve had personal experience with this and it can be life changing and a nice surprise! Contact me* to see a model that may work for you.

Building the Family

In the end, taking institutional investment is a bit like getting married after a whirlwind romance. It’s exciting, potentially life-changing, and just a tad terrifying. You’re committing to a long-term relationship with someone who will have opinions about how you spend your money, run your household, and raise your “children” (read: products or services).

But fear not, intrepid entrepreneur! With the right partner, it can be a beautiful union that helps your “family” grow and thrive. Just remember, no matter how things may turn out and remember some are out of your control), as the great Winston Churchill once quipped, “Success is not final and failure is not fatal. It’s the effort after that counts.”

Now go forth, take that money (or don’t), and may your cap table be ever in your favor!

*Contact me for the information above or consult: chris@operatorup.com

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Chris Greco is a dedicated father, husband, and CEO known for his faith, underdog grit, and perseverance. His boundless energy and core values approach have been instrumental in uniting organizations to achieve goals that once seemed unattainable.

Beyond his professional achievements, Chris serves as a Board Director, advisor to growth-stage companies, volunteer, and keynote speaker. He resides in Kansas City with his wife, two children, and their rescue dog.