In the Venture Capital ecosystem, startups typically rely on a sequence of financing rounds to fund growth. SmartUp emphasizes that every round is a trade-off: the company gains runway, but founders give up ownership percentage and frequently decision-making power.
Rounds are categorized by how the company’s valuation compares to the previous round. An up round occurs when the pre-money valuation is higher than before, signaling perceived value creation. A down round happens when the valuation drops, usually due to missed milestones, financial distress, or market conditions, and often triggers aggressive anti-dilution mechanisms that heavily damage founder equity. A flat round occurs when valuation remains unchanged.
Yonatan Stern describes fundraising as walking a tightrope. Each round requires meeting specific milestones. At the concept or seed stage, capital is raised on the idea and team. A Round A typically requires a working product, while later rounds demand proven traction, revenue, or a functioning sales engine. If a company runs out of cash before hitting the required milestone, it enters the “Death Zone,” where raising the next round becomes impossible or extremely punitive.
The lectures illustrate dilution through the case study of “Joe and Julie.” After a seed round with 20% dilution and a Round A with 33% dilution, later rounds raise increasingly larger amounts. Over time, founder ownership erodes dramatically, often falling from full ownership to less than 7%. This demonstrates the cumulative cost of repeated fundraising in the VC-backed model.
From the SmartUp perspective, Venture Capital firms encourage frequent rounds to mark up valuations on paper. SmartUp instead promotes breaking this dependency by reaching profitability early. Once a company is profitable, it no longer needs the next round to survive, allowing founders to play an Infinite Game with independence and leverage.
