Fund it, or do not

The analogy I keep coming back to is music. Do not get signed before you have the album. Write the songs, record them in a bedroom studio, play locally, get people buying. Then take the record deal, and take it as somebody who already has an audience and does not strictly need one.

That is the whole of the second pillar from Ship it, and see if they miss it: the investors should be calling you, not the other way round. This chapter says why, what I think investors are choosing when they choose a founder, what a founder who has already won could offer instead of the usual round, and what breaks. It touches money, shares and tax, so I will say it once and mean it throughout: this is from experience and from the research I cite, not legal, tax or investment advice; the UK figures are for one tax year and other countries differ; and I am a founder whose companies run on open source, so this argument suits me.

The worst time to raise

Here is the claim, stated plainly. The worst possible time to raise money is before you are profitable, before you have the product, before you understand the fit. Which is, of course, exactly when most companies raise.

Everything follows from the negotiating position. You are bargaining from weakness and both sides know it: you have no product and you have a clock. Profitability does not just mean money. It means time. When you are not bleeding, you can wait, and being able to wait is most of what a good negotiating position is.

So the terms are bad, and the worst of them are not about money. They are about control. You hand a say in the business to people whose job is a return and who have not lived the vision. Their focus is now structurally misaligned with yours, and their opinion has been given weight. I think that is one of the most common ways companies fail, and it is self-inflicted at the moment of signing.

With agents making execution cheap, getting to profit before you need anyone's money is more possible than it has ever been. So the pillar is not "never raise". It is: "Raise from strength, on terms you set, from people who came to you because the thing already works."

We study survivors

Before the evidence on investors, a warning about evidence on founders, including the stories in this book.

There is a whole genre of business writing that goes: look at these successful companies, here is what they did, do the same. What it almost never does is count the people who made exactly the same moves and did not make it, or were never funded. Jerker Denrell put this on a formal footing in 2003: "risky practices, even if they are unrelated to performance in the full population of organizations, may seem to be positively related to performance in a sample of survivors." So the question that matters is not what the winners did. It is why that one was chosen, funded and backed, when others who did the same were not.

Timing and place are part of the answer. In the MusicLab experiment, 14,341 people downloaded unknown songs, and showing them what others had downloaded made success more unequal and less predictable: "The best songs rarely did poorly, and the worst rarely did well, but any other result was possible." And the ten largest computer-science clusters hold 69% of US inventors in the field. Being in the room is an advantage the success stories rarely list, including mine.

Who investors choose, and why

Take two founders with the same opportunity, the same drive, the same idea and the same talent. Why does the investor pick one and not the other?

My hypothesis is that one of the deciding factors is control: which founder the investor believes will take direction, accept decisions made in the investor's interest, and step aside if asked. The relationship is financial, not emotional; the founder is there to deliver a return, and is, in the end, replaceable. In Wardley terms the investor moves the founder towards commodity, as record labels did to performers once the songs were the asset.

Nobody has tested that directly, as far as I could find. But a well-studied trait sits very close to it: coachability. Investors say openly that they look for it, and the researchers who reviewed the evidence in 2023 wrote: "While investors and support organizations such as accelerators prefer coachable entrepreneurs, being coachable doesn't necessarily make your firm more successful." If investors reliably select on a trait that does not reliably predict success, something other than success is being selected for.

Control is in the paperwork. Kaplan and Strömberg read 213 venture investments in 119 companies and found that "if the firm performs poorly, the VCs obtain full control. As performance improves, the entrepreneur retains/obtains more control rights. If the firm performs very well, the VCs retain their cash flow rights, but relinquish most of their control and liquidation rights." They also found non-compete and vesting provisions that make it more expensive for the founder to leave. And the replaceability gets used: in Wasserman's study of 212 US startups, by year three "50% of founders were no longer the CEO", and "fewer than 25% led their companies' initial public offerings". Those are startups of the late 1990s and early 2000s.

Now the part where my own evidence cuts against me. Investors have a serious reply: control creates value. Wasserman's later study of 6,130 US startups found that each additional level of founder control, over the board or the CEO position, reduced the pre-money valuation by 17.1 to 22.0 percent, and Ewens and Marx argue that replacing founders improves exits. I accept the numbers. What I do not accept is that they settle the question, because both measure value as the investor measures it, at the valuation and the exit, not at the mission. Over a longer run Bain found founder-led companies in the S&P 500 performed 3.1 times better in shareholder returns from 1990 to 2014; that is Bain's own analysis, not peer-reviewed. And there is a selection effect inside the investors' evidence: if they fund the coachable founders in the first place, the strong-minded ones who walked away or bootstrapped are mostly not in the sample. Denrell again.

If the hypothesis holds, the founder with a strong vision, a clear direction and strong ethics is at a disadvantage in early funding, not because they build worse companies but because an investor reads them, correctly, as someone who will not easily be overruled. That is the expert founder of Be a founder: the people who know the problem best are the hardest to steer. The practical conclusion is not to avoid investors. It is to get to the big stick before you need their money, so that the choice of investor is yours.

Europe's money, oddly, helps here. It is said that American investors back the vision while European investors want to see it working, and one vendor's aggregated figures have a version of it: European companies raise at higher revenue (a median band of $1 million to $5 million against $100,000 to $1 million in the US), at lower pre-money valuations ($6.54 million against $14.64 million), with funding targets 46% smaller. That is weakly evidenced, but it fits what founders say. I think that scepticism is what an expert founder needs, because money too soon is one of the worst things that can happen to a startup: a study of about 3,200 high-growth internet startups found 74% failed through premature scaling, and that "Many investors invest 2-3x more capital than necessary in startups in the discovery phase." The gap is real at the other end: the EU's share of global venture funds raised is 5% against 52% in the US, and close to 30% of the unicorns founded in Europe between 2008 and 2021 moved abroad. Europe is weak at scaling. My argument is that the first part, the part that now matters most, is where it is strong, and its values fit: an open source strategy in the Commission's June 2026 sovereignty package, and impact at 15% of European venture funding against 7% in North America.

Sell, don't issue

Suppose you did it the hard way. You have paying customers, profit and growth, built cheaply with agents, and more than one investor wants in. The negotiation has flipped: you do not need the money to survive, and the investor needs access to the deal.

My answer has two parts. First, sell, don't issue. In a normal round the company issues new shares and the money goes into the company. Instead, the investor buys ordinary shares you already own, in a private sale. You are paid now, for years of underpaid work; the company is not diluted; and nothing in the deal requires preferred shares, a board seat, a veto or a liquidation preference. The investor buys the vision and the direction, not the steering wheel.

Second, lend, don't dilute. If the company needs cash, lend it part of the proceeds, subordinated by contract to every other creditor, at a modest fixed rate or none, repaid if the company succeeds. The company gets money without issuing a share; you keep your ownership; nobody outside gains control.

The investor's obvious objection is: what if the founder goes rogue? The answer is the third pillar. With everything open source, the investor's insurance is not control but the fork: if you take the company somewhere they will not follow, they can take the code and back a better service. The fork is slow both ways: by my estimate an established company holding a full copy needs three months at best and closer to a year to catch up. It disciplines the founder because it is possible, and protects the founder because it is slow. That is an argument, not a tested mechanism; Open source has the longer version.

A worked example, illustrative only: a UK company worth £10 million, a founder who owns all of it, an investor writing £2 million. The founder keeps 80% either way. In this model the investor buys 20% of the founder's shares; the founder pays about £420,000 in tax (18% on the first £1 million under Business Asset Disposal Relief from 6 April 2026, if its conditions are met, and 24% above), has about £1.58 million, lends £0.75 million back and keeps about £0.83 million; the buyer pays 0.5% stamp duty. I think the structure raises the odds of success, not only the founder's comfort, because a founder lending their own money watches every penny, and premature scaling is how 74% of those high-growth startups died. No study tests this model; the claim is from discipline and incentives, not data.

What breaks

A founder who uses this should know its costs before the term sheet does.

UK angels get EIS relief of 30% and SEIS of 50% only on newly issued shares, so bought shares are that much dearer to them; expect a lower price, or a hybrid with some new shares. Ordinary shares are often priced 10% to 30% below the last round, though competition shrinks the discount. A large early sale can read as a lack of conviction: Balderton writes that it would not expect a founder to sell more than 10% at growth stage and has walked away from deals over the size of a secondary. A founder who sells and lends back has moved part of their risk ahead of the new investors unless the loan is subordinated in writing. Control can return through a shareholders' agreement, and the model only holds if you refuse those terms.

And refuse a broad non-compete. The fork protects both sides; a broad non-compete keeps it for the investors and takes it from you. Offer confidentiality, no poaching of staff or customers for a period, and no use of the brand instead. The law will not do this for you: the UK's 2023 plan to cap non-competes at three months was never legislated. Four more points for a lawyer are in the article, from transfer restrictions to the order of issue and sale in a hybrid.

The model fits a profitable company growing on its own revenue, with competition for the deal, open code and customers who stay for the service. It fits badly where the company must spend heavily ahead of revenue, with angels who need EIS, where the value is proprietary code (no fork), and with funds whose model depends on control.

What matters is not the exact mix of shares and loans. It is that you set the terms, and that no part of the money buys the steering wheel. Do not get signed before you have the album.