You have a project, a prototype or your first customers, but insufficient cash for the next step. Should you approach family, find a business angel or contact a venture capital fund? The right choice depends on the amount required, the evidence already available and the role you are willing to give investors.
Raising money also means choosing the people with whom you will share your business’s value and decisions. Here is how to prepare in Switzerland, from initial funding to bringing investors into the company’s equity.
At a glance
- Seed funding describes a stage; business angels and funds are categories of investor.
- The amount raised should finance a demonstrable milestone and a realistic cash timetable.
- Compare dilution, economic rights and governance, and distinguish investor interest from cash received.
Seed funding, business angels and venture capital: the differences
The term seed funding covers early business stages: validating demand, developing an initial offer, testing sales and building the founding team. It describes a funding stage, not one particular type of investor.
A business angel invests their own money in a business and may also contribute experience, contacts and an external perspective. A venture capital fund invests money raised from its own investors according to a defined strategy covering sectors, geography, maturity and deal size.
These categories overlap. Angels can finance seed-stage businesses, but some funds also invest very early. Conversely, not every new business is suited to professional equity investment.
| Term | What it describes | Question to ask |
|---|---|---|
| Seed funding | The early stages that need financing | What evidence must this money help us obtain? |
| Friends-and-family funding | Money provided by people close to the founders | Is it a loan or an equity investment? |
| Business angel | An individual investor | Does their experience fit the project? |
| Venture capital | Funding seeking growth and investment returns | Does the project’s ambition fit the fund’s expectations? |
The terms pre-seed and seed usually describe early stages. Pre-seed often concerns initial validation, while seed supports development and early commercial results. Boundaries vary between investors. Focus on what you have already proved and what remains to be demonstrated.
Financing the start with your own resources and family
Before approaching investors, calculate what your available resources could achieve. A simple product version, pilot engagement or first sale may provide stronger evidence than complete development without customer feedback.
The term bootstrapping means developing with limited resources, including founder contributions and business revenue. It is not another name for Lean Startup, which is a testing and learning approach. A business can test quickly while also having investors.
Friends-and-family funding still needs a clear agreement
Money from relatives is not automatically share capital. A parent may lend money; a friend may subscribe for shares. These transactions create different expectations. Record the funding type, conditions, rights and consequences if the project fails.
Explain the risk of loss and potentially being unable to sell the investment for years. Do not present equity as savings available on demand. For a loan, specify repayment and any interest. For an equity investment, prepare the documents and formalities appropriate to the company.
Is your business suitable for investors?
A good small business is not necessarily a good venture capital investment. A practice, shop or service business can be profitable without aiming for growth that supports a substantial investment exit. Customer revenue, personal contributions or suitable bank financing may fit such a project better.
Investors assess the problem solved, accessible market, differentiation, commercial evidence and the team’s ability to execute. They also want to understand how their holding could gain value and eventually be sold.
The term traction describes evidence of market interest: sales, active customers, renewals, product use and paid trials. Follower numbers or a letter of interest do not prove the same thing as a paying customer who returns. Present each measure for what it actually demonstrates.
Calculate the funding required and the milestone it will support
Start with a financial forecast and cash-flow budget. The amount sought should cover a specific plan: building the product, obtaining technical validation, signing customers or reaching a revenue level.
Here is a fictional twelve-month example for a small business developing professional software:
| Need or resource | Illustrative amount |
|---|---|
| Product development | CHF 80,000 |
| Team work and external services | CHF 100,000 |
| Sales and operating costs | CHF 40,000 |
| Cash buffer | CHF 30,000 |
| Total requirements | CHF 250,000 |
| Available resources after other commitments | −CHF 50,000 |
| Forecast customer receipts during the period | −CHF 40,000 |
| Additional funding required | CHF 160,000 |
This is neither a standard budget nor a valuation. Put receipts in the correct months: a December sale cannot pay a June invoice. Also test slower sales and more expensive development.
Explain what the CHF 160,000 will achieve. “Finance growth” is too vague. “Complete a marketable version and test sales with an initial professional customer base” provides a more concrete basis for discussion.
Calculate your time before the next financing
Net cash consumption, often called the burn rate, measures the decline in operating cash over a period. With CHF 120,000 available and steady net spending of CHF 10,000 a month, theoretical runway is twelve months. That division works only when flows remain comparable. Major industrial expenditure or irregular receipts requires a monthly plan.
Do not start fundraising when cash is almost exhausted. Preparation, meetings, due diligence and legal completion take time, with no guaranteed duration. Set a date for reducing expenditure or activating an alternative plan if funding is unconfirmed.
Where can you find business angels in Switzerland?
Start with networks familiar with your sector and development stage. The Confederation’s SME portal (French) lists Business Angels Switzerland, StartAngels and SICTIC, among others. Check their selection criteria and application process before submitting.
Support programmes and entrepreneurial organisations can also facilitate introductions. Our guide to business start-up support in Switzerland (French) identifies other contacts. An adviser, a grant programme and an investor nevertheless provide different things.
Build a short, qualified list: investment focus, preferred stage, known transactions, contact person and reason for a good fit. A tailored message explaining why you are approaching that investor is more credible than mass emailing.
Prepare a pitch that supports a decision
The initial discussion should make the project understandable quickly. Prepare a concise presentation and evidence supporting the main claims.
- Your target customer, their problem and your solution.
- The accessible market and competitors, including substitute solutions.
- The business model, pricing and principal costs.
- Results achieved, clearly separated from forecasts.
- Team members, responsibilities and missing capabilities.
- Funding requested, use of funds and planned milestones.
- Current ownership and commitments already made to other funders.
Your business plan (French) should connect these elements. Also prepare accounts, significant contracts, rights in developed products and company records for review. Share sensitive information progressively according to the discussion’s needs and appropriate safeguards.
Organise an understandable data room
A data room is an organised space for due diligence, not a dumping ground for every file. Create an index covering company documents, the capitalisation table, accounts, financial commitments, significant contracts, employment matters and intellectual property.
Give important documents a version, date and explanation of outstanding issues. An unsigned customer contract should not appear as a confirmed sale. For development by a contractor, check which rights were actually transferred to the company. Investors should be able to connect your claims with supporting documents.
In early discussions, explain the project without revealing technical secrets unnecessary for the decision. A non-disclosure agreement can govern deeper due diligence, but does not replace access restrictions and limits on personal data shared.
Understand dilution before negotiating
The term dilution means a reduction in your ownership percentage when new shares are issued to others. It is not a commission deducted from the money raised.
Simplified example: the business is valued at CHF 800,000 before investment and receives CHF 200,000 in new equity. Post-investment value is CHF 1,000,000. The new investor holds 20%; existing holders collectively retain 80%. This assumes a simple transaction without special rights, convertible instruments or new team equity awards.
The percentage alone does not tell you whether an offer is attractive. Examine voting rights, reporting, reserved decisions, exit conditions and special economic rights. These must fit the articles of association and shareholders’ agreement (French).
Funding can also take the form of a convertible loan: money is advanced under a contract providing for possible conversion into equity. This does not remove dilution; it postpones or defines its calculation. Have the terms checked before signing.
Model several rounds, not just the first
Suppose two founders each own 50% before the CHF 200,000 investment above. Once the investor takes 20%, each founder holds 40%. In a second round, a new investor provides CHF 500,000 at a CHF 2,000,000 pre-money valuation, again receiving 20% afterwards.
| Holder | Before fundraising | After round one | After round two |
|---|---|---|---|
| Founder A | 50% | 40% | 32% |
| Founder B | 50% | 40% | 32% |
| First-round investor | 0% | 20% | 16% |
| Second-round investor | 0% | 0% | 20% |
| Total | 100% | 100% | 100% |
The second round multiplies each existing percentage by 80%. Each founder does not lose another twenty percentage points. The example excludes options, convertibles and special rights. For your transaction, also consider a fully diluted view, including instruments or rights that could become equity under the assumptions used.
The highest valuation is not automatically the best offer. It may come with more restrictive economic rights or expectations difficult to meet at the next round. Compare all terms across different success and exit scenarios.
Read a term sheet before committing
A term sheet summarises proposed principal conditions and prepares the final documentation. Its title does not make it wholly non-binding: confidentiality, exclusivity and fees, for example, may be binding depending on the wording.
| Subject | What to understand before accepting |
|---|---|
| Valuation and amount | Pre-money or post-money value and the money actually paid into the business |
| Equity involved | New share issue, sale of existing shares or a combination |
| Governance | Board composition, information rights and decisions requiring specific consent |
| Liquidation preference | Economic priority on exit and how remaining proceeds are shared |
| Anti-dilution protection | Possible consequences of a later round at a lower valuation |
| Founder commitments | Time commitment, departure consequences and possible vesting |
| Share transfers | Pre-emption, tag-along and drag-along rights in agreed circumstances |
| Timing and exclusivity | Negotiation period, conditions precedent and freedom to seek other offers |
| Fees | Who pays advisers, within which limits, including if the deal fails |
Separate money for the company from money for a shareholder
When investors subscribe for new shares, the corresponding money finances the company. When they only buy a founder’s existing shares, the proceeds go to that seller. The transaction may be legitimate, but it does not fund the company’s development budget. Present the two flows separately.
Understand liquidation preference through an example
Imagine an investor providing CHF 200,000 for 20%, with a simple 1x non-participating preference allowing a choice between that priority payment and a proportional share. With CHF 600,000 of net distributable exit proceeds, the investor chooses CHF 200,000 rather than 20% of CHF 600,000, or CHF 120,000. Other holders share CHF 400,000 according to their rights.
With CHF 2,000,000 distributable, the investor chooses the proportional CHF 400,000. A participating preference could produce a different outcome. This example assumes one preferred investor, no other priorities and documents specifying exactly this mechanism. Two offers for “20% of the equity” can therefore have different economic effects.
Convertible loans: parameters to model
Examine principal, interest, maturity, conversion triggers, discount, any valuation cap and what happens without a later round. A cap and discount do not necessarily apply cumulatively: the contract defines the formula.
Test three cases: a successful next round, a lower-valuation round and no round before maturity. The company needs to know whether repayment, an extension or contractual conversion will be required. Faster initial financing can defer an important negotiation until cash is less comfortable.
Organise fundraising from first contact to payment
Manage the search like a sales process, with stages and a responsible person. Track investors contacted, feedback, documents shared and the next action. Keep figures consistent: contradictory presentations complicate due diligence.
- Qualification: confirm fit between the investor’s sector, stage and funding amount.
- Initial discussion: explain the project, evidence obtained and milestone to finance.
- Due diligence: answer questions and progressively share relevant documents.
- Negotiation: discuss economic terms, rights and timing.
- Completion: finalise contracts, corporate decisions, formalities and payment conditions.
An expression of interest is not available cash. A term sheet does not necessarily satisfy every investment condition. In the cash forecast, distinguish discussions, conditional contractual commitments and funds actually received.
Check the legal structure before closing
A sole proprietorship cannot issue shares like an SA/AG or Sàrl/GmbH. Equity investment therefore requires a suitable structure and corresponding legal steps. For an existing company, check its articles, current holders’ rights and necessary approvals.
Formalities depend on the transaction: capital increase, transfer, convertible instrument or another arrangement. Coordinate signatures, corporate decisions, notarisation where required and registrations. A shareholders’ agreement does not replace acts required by company law.
Record conditions precedent, such as transferring software rights, regularising a contract, repaying an advance or securing another investor. Assign responsibility and evidence of completion for each. Payment should not depend on an unmonitored task list.
Choose the investor and organise the relationship
You are assessing the investor as much as they are assessing your project. Discuss their horizon, involvement, growth expectations and approach to difficulties. Where possible, speak with founders they already support.
Fundraising involves discussions, due diligence and negotiation. Do not build cash planning around an unsecured payment date. Keep monitoring sales and spending throughout. If using an intermediary, understand their mandate, remuneration and authority to make commitments for you.
After investment, agree useful reporting: available cash, sales, milestone progress and decisions required. Reporting delays early creates room for discussion; hiding them until cash runs out reduces options.
Agree reporting frequency and decisions requiring formal consultation. A monthly dashboard can combine actual results, budget, variance explanations and agreed actions. It should help manage the business, not merely reassure the funder.
Where several investors join together, clarify coordination. Who leads discussions? Who represents the group and with what authority? How will future rounds be considered? Individually suitable investors can become difficult to manage if every decision requires separate negotiations.
Finance a concrete milestone rather than a prestigious headline amount
Good financing gets you to an important milestone on terms the business can sustain. Cost that milestone, gather available evidence and choose funders suited to the project.
Friends-and-family funding, angels and venture capital may follow or complement one another, but they are not an obligatory route. Growing through customer revenue can also be an excellent choice. If a community campaign fits your project, consider crowdfunding in Switzerland.
Frequently asked questions
What is the difference between seed funding and share capital?
Share capital is a legal concept linked to contributions to a company. Seed funding describes the initial development stage. It may involve share capital, loans or other suitable resources.
Do I need customers before approaching a business angel?
Not always. Some investors participate before first sales. You still need relevant evidence: a validated problem, prototype, team capabilities or tests. The greater the uncertainty, the more the discussion focuses on risk.
Can I obtain funding without giving up equity?
Depending on circumstances, yes: customer revenue, loans, support programmes or certain crowdfunding models. Each has its own conditions. A loan creates repayment obligations; equity grants rights to the investor.
Must friends-and-family funding be repaid?
It depends on the transaction. A loan requires repayment under its terms. An equity investment is not a debt repayable on a fixed date. Clarify this in writing before money changes hands.
How much equity should an investor receive?
There is no universal percentage. It depends on the amount, negotiated valuation, rights and funding structure. Model future rounds before concluding the deal too.
What is the difference between pre-money and post-money valuation?
Pre-money value is agreed before the new investment; post-money includes it in a simple transaction. CHF 800,000 pre-money plus CHF 200,000 invested gives CHF 1,000,000 post-money and 20% for the investor, excluding other instruments or adjustments.
Does a term sheet guarantee the investment will happen?
No. Read its legal effect, conditions precedent and remaining documentation requirements. Some clauses may nevertheless already bind the parties. Agreement in principle is different from available cash.
Sources and references
- SME portal — Business angels (French)
- SME portal — Equity financing (French)
- SME portal — Initial capital (French)
- Fedlex — Code of Obligations, company law
Numerical examples are fictional and explain the reasoning. Transaction terms are negotiated according to the business and contractual documentation.
Romain Prieur is a Swiss-qualified chartered accountant and founder of Entreprendre.ch. With more than ten years of experience in audit and supporting Swiss businesses, he advises entrepreneurs on company formation, accounting and taxation.
