Typically when raising money at the build stage, the item that entrepreneurs focus on most is valuation. Makes sense. Usually by the time you get to build phase, the number of dollars is high enough and the valuation low enough that it matters (unlike a friends and family round, or a Series F). One item that is often overlooked at the company’s peril is governance.
Governance put simply is the list of rights, or lack thereof, that investors get. Usually when you raise preferred stock, which is how build rounds work, you have to give up certain rights. No longer can you decide to raise more money or sell the company without agreement from each block of investors. I have seen companies where the “block” of investors is exactly 1 person, meaning that this single person’s consent is required for any significant transaction to go forward. No bueno.
I also have seen companies where current investors have very few rights compared to a small number of insiders who effectively control both the ownership and day-to-day management of the company. Convenient for them and helpful when it’s time to make quick decisions, but less helpful from the standpoint of attracting new investors who will want some protection.
This also comes up when writing convertible notes. A convertible note isn’t equity yet, so it doesn’t have typical rights of preferred stock. Convertible note investors need reassurance that when it does convert, it will do so and grant their block certain rights that are on par with existing investors (just get more than 1 investor in this block).
Finally, I also have seen blocks where if you don’t get a particular investor to assent to an action, it’s very difficult to construct the necessary margin. This can happen when you have 1 or 2 large investors and then a large group of very small ones.
My advice to CEOs with whom I work is to think almost as carefully about this as they do about valuation. For sure you want to keep as much of the company as you can, but you want to make sure you can still run that company and make it possible to attract future investors to it if you need to.