The Startup Capital Stack:
A Guide Not to Accidentally Selling Your Entire Company
By Rafael Karamainan
Founder and Managing Partner at Lendity
Here's a fun fact: Most founders are terrible at math when it comes to their own cap table.
Take the classic "we only gave up 25%" seed round. Sounds reasonable until you do the math: at a CHF 200M exit, that 25% equals CHF 50 million. You just sold CHF 50M of future value for CHF 2M today.
Now, that might be brilliant if that CHF 2M unlocks exponential growth. Or it might be the most expensive money you ever raised. The difference? Understanding when to use which tool in your capital stack.
But here's the thing: that seed equity wasn't wrong. It was probably brilliant. Early equity is rocket fuel. It's just that most founders keep pouring rocket fuel on their company long after they've achieved orbit, wondering why they're burning through ownership like a crypto bro burns through Twitter followers.
The inflection point? Usually around CHF 2-4M ARR, when you have predictable revenue, proven unit economics, and need growth capital rather than experiment capital. That's when smart founders start exploring non-dilutive options (like what we provide at Lendity) to preserve the equity they'll wish they had at exit.
The Real Capital Stack (Not the One They Teach You at Business School)
Your capital stack is like a Swiss Army knife. Each tool has its perfect moment. Use a corkscrew to cut bread, and you're going to have a bad time.
Hover over each layer to learn when and how to use different types of capital.
Collateral-backed, lowest cost ›
Revenue-oriented, non-dilutive ›
Debt + warrants, moderate dilution ›
Late-stage equity, high dilution ›
Growth equity, board control ›
Early investor equity ›
Core ownership ›
Layer 1: Equity (Your Actual Foundation)
Let's get something straight: equity is the bedrock of every great startup. Not debt. Not grants. Not your uncle's "loan" that he'll definitely want back someday. Equity.
Why? Because early-stage startups are basically expensive science experiments with business models attached. You need investors who understand that your "pivots" aren't failures, they're hypothesis testing. Try explaining that to a bank. I'll wait.
- Common Shares: The Founders' Currency
This is your starting hand. You and your co-founders, dividing up 100% of something currently worth CHF 0. It's beautiful in its optimism. Guard this pool carefully, because everyone wants a piece.
- The Preference Stack: Where Things Get Spicy
Not all shares are created equal. Welcome to the preference stack, where we separate the tourists from the natives.
Angel/Seed Preferred: Your first institutional money. Usually comes with:
-
- 1x liquidation preference (they get their money back first)
- Basic protective provisions (can't sell the company without them)
- No board seat (they're happy to WhatsApp you advice at 11pm though)
Series A and Beyond: Now you're playing with the big kids. Each round adds another layer:
-
- Another 1x liquidation preference (these stack like pancakes)
- Anti-dilution protection (because VCs hate losing money more than they love making it)
- Board seats (hope you like board meetings)
- Veto rights on everything from budgets to your lunch order (kidding about the lunch)
The Liquidation Waterfall Reality Check: If you raise CHF 2M Seed, CHF 8M Series A, and CHF 15M Series B (all standard 1x preference), you need a CHF 25M+ exit before you see a franc. Below that? You basically worked for years to pay back your investors. Fun!
Model Your Exit Math: Before signing any term sheet, model your cap table at three exit scenarios: CHF 25M, CHF 50M, CHF 100M. Calculate exactly what you'll take home at each level. If you're not happy with those numbers, renegotiate or restructure. This isn't pessimism, it's pragmatism.
Layer 2: The Debt Instruments (Your Flexibility Tools)
Once you have equity as your foundation and actual revenue coming in, debt becomes interesting. Not before. Please don't try to debt-finance your pre-revenue AI-for-dogs startup.
- Traditional Bank Loans: The Dinosaur
With maybe one exception, Swiss banks will lend to startups the same way I'll start enjoying jazz fusion: theoretically possible, practically unlikely. They want:
-
- Physical assets (your MacBooks don't count)
- Personal guarantees (hope you own property)
- Your firstborn child (metaphorically, but barely)
When it works: You're buying real estate, manufacturing equipment, or have a founder willing to personally guarantee everything.
When it doesn't: You're a SaaS or Tech company. So... 90% of you.
- Growth Loans: The Modern Game
This is where things get interesting. Two flavors, vastly different outcomes:
Pure Growth Debt (Non-Dilutive): Straight debt against your recurring revenue. No equity warrants, no ownership transfer. Just capital with a price tag.
The beautiful part? If you're growing 100% year-over-year, paying 15% for capital that keeps you from diluting 20% is just math. Good math.
Venture Debt (The Tweener): Debt with warrants attached. Usually 0.5-2% of your company. It's like debt that's a little bit pregnant with equity.
VCs and founders tolerate it because it's less dilutive than a full round. It's the "it's complicated" relationship status of startup finance.
Layer 3: The Exotic Stuff
Won't spend much time here, but for completeness:
-
- Grant money (free money, brutal applications)
- Convertible notes (kick the valuation can down the road)
- SAFEs and Revenue sharing agreements (popular in Silicon Valley, basically non-existent in Switzerland and Europe)
This US-centric stuff gets tons of press but has minimal relevance in DACH markets. While American founders debate SAFE caps, Swiss founders are actually building businesses. Our market insight at Lendity: European founders prefer clear, straightforward instruments over financial engineering.
The Playbook Nobody Teaches You
Timing is Everything (And Everything is Timing)
Here's what smart founders do:
- Raise equity when you're selling vision (early stage)
- Add debt when you have predictable revenue (CHF 2M+ ARR)
- Use debt to bridge between equity rounds when growing fast
- Never raise equity just because you're low on cash
capital have
revenue
capital strategy decision matrix
framework for startup funding decisions
The "One More Round" Trap
Every equity round should have a purpose beyond "we need money." Are you:
- Expanding to new markets?
- Building a new product line?
- Acquiring competitors?
If you're raising to "extend runway," you're probably better off with debt. Equity is for building new experimental things, debt is for accelerating predictable and existing things.
Founder Capital Checklist
- Do I actually need external capital, or am I just scared?
- If equity: What am I building that didn't exist before?
- If debt: Can I service this from current or future revenue?
- Have I modeled my cap table at 3 different exit scenarios?
- Am I raising from investors I'd want to have dinner with?
- Did I negotiate every term, or just the valuation?
- Will I own enough at exit to make this worth it?
The Meta Game
The best founders I know think about capital like master chess players think about pieces. Every move has consequences three moves later. That Series A at a "great valuation" might lock you into a growth trajectory that forces a Series B before you're ready. That venture debt might come with covenants that limit your pivot options.
The worst founders treat each round like a victory lap. "We raised CHF 20M!" Cool. How much of your company do you still own?
Your capital stack tells a story. Make sure it's one where the founders still matter in the final chapter. Because there's nothing sadder than building a CHF 100M company and walking away with less than your Series A investors made.
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