---
title: Capital Strategy
summary: Name your capital stage, match the right funding instruments to it, and decide from a framework not a pitch.
est_minutes: 18
sort: 5
slug: foundation-capital-strategy
---

Most operators make the worst capital decision of their career before they ever have the right framework to make it.

They take the first funding offer that comes to them, whether they needed it or not. Or they refuse every form of outside capital on principle, even when it would obviously have helped. Or they take on debt at the wrong stage and discover a year later that the debt was built for a different business than the one they run.

The mistake is almost never malicious. It is almost always structural. Operators are asked to make capital decisions before anyone has taught them the two questions the decision actually turns on. What stage is my business in right now. And what instruments are appropriate for that stage.

Every capital instrument is right for some stage. And wrong for all the others.

This module will not turn you into a banker. It will turn you into an operator who can name your current capital stage in one sentence, see which funding instruments fit and which do not, and make capital decisions from a framework instead of a pitch.

**The Capital Stage Map And Instrument Matcher**

The framework has two parts. The Capital Stage Map tells you where you are. The Instrument Matcher tells you what fits.

Stage first. Instrument second. Never the other way around.

Meet Priya. She runs a B2B SaaS business in Raleigh. Nine hundred and fifty thousand in annual recurring revenue, seven employees, three years in business. She has bootstrapped to this point. Last month two conversations happened in the same week. An early-stage fund approached her with an offer to invest seven hundred and fifty thousand dollars in exchange for fifteen percent equity. Her CPA suggested she explore a one hundred and fifty thousand dollar line of credit with her bank.

Priya does not know which is right for her. She does not know if either is right for her. And the conversations she is having are with people who are incentivized for her to say yes to their specific offer, not to evaluate whether either fits her stage. The Capital Stage Map is how she finds out.

Part one. The five capital stages.

Every business sits in one of five capital stages at any given moment. The stage is determined by revenue, growth rate, margin health, and cash runway. Not by what the business wants to be. By what the business actually is right now.

1. Bootstrapped. Pre-revenue or very low revenue, no proven margins, no cash runway. The only appropriate capital at this stage is owner capital, friends and family, or micro-grants.
2. Revenue-Funded Growth. Revenue is flowing, margins are proven, growth is funded from operations. Most businesses between one hundred thousand and two million in revenue are here. The appropriate capital is almost always more disciplined use of the cash you already have, not new outside capital.
3. Debt-Ready. Revenue is stable, margins are healthy, and there is a specific operational need that debt can solve, with clear repayment capacity. Lines of credit, SBA loans, and equipment financing fit here.
4. Equity-Ready. Growth is fast enough and margins are defensible enough that outside equity becomes appropriate, because the growth that equity will fund produces returns that exceed the cost of giving up ownership. Most businesses never need to reach this stage. A minority do.
5. Exit-Ready. The business is positioned for a partial or full sale, a recapitalization, or a structured exit. Capital decisions at this stage are about value realization, not growth funding.

Part two. The Instrument Matcher.

Each of the five stages has a small set of capital instruments that fit, and a larger set that do not. The Instrument Matcher surfaces the fit and flags the misfits for your specific stage.

Priya's stage, based on her financials, her growth rate, and her cash runway, is somewhere on the boundary between Revenue-Funded Growth and Debt-Ready. The Instrument Matcher tells her that the line of credit her CPA suggested is a fit at her stage, used for a specific operational purpose. And the equity offer from the early-stage fund is a stage-four instrument, being offered to a stage-three business, which is almost always the wrong trade. She does not have to say no to the fund. She does have to know that if she says yes, she is taking an instrument built for a stage her business has not reached.

**The Three Capital Questions**

Three questions. Run any capital offer through all three before you say yes.

Question one. What stage is my business actually in?

Not what stage you want to be in. Not what stage the investor thinks you are in. What stage your real numbers say you are in. Revenue, margin, runway, growth rate. The Stage Map assesses this in under ten minutes.

Question two. What instrument is being offered, and what stage is it built for?

Every instrument has a stage it was designed for. Equity from early-stage funds is built for stage-four businesses. Lines of credit are built for stage-three businesses. SBA loans are built for the mid-range of stage three. If the instrument being offered is built for a different stage than your business, that is the first red flag.

Question three. What specific problem will this capital solve that the business cannot solve from operations?

If you cannot name the specific operational problem, you do not need the capital. Most capital offers do not solve a specific problem. They create optionality, which sounds good, and dilution or repayment obligations, which are real. Take capital when there is a problem. Decline it when there is not.

**Common Failure Modes**

Three traps to catch.

Trap one. Taking capital built for a different stage.

Equity offered to a debt-ready business. Debt offered to a bootstrapped business. SBA loans offered to a pre-revenue startup. Every wrong-stage instrument looks attractive in the moment and expensive in retrospect.

Trap two. Taking capital without a named operational problem.

Capital that does not solve a specific problem adds complexity to the business without adding capability. Dilution on equity, interest on debt, covenants on lines of credit. All real costs in exchange for optionality that the operator rarely uses.

Trap three. Refusing capital on principle.

The opposite trap is equally costly. Operators who refuse every form of capital on principle miss opportunities where a stage-appropriate instrument could have funded a clear operational need. The framework says yes when the instrument fits the stage and the problem is named. It says no when either of those conditions fails. Blanket rules in either direction are not the framework.

**What To Do Right Now**

After this video, the Module Teaching lesson below walks through each of the five stages in depth, the full instrument menu per stage, and Priya's complete walk-through as she evaluates both the equity offer and the line of credit against her actual stage.

The workbook then walks you through the Capital Stage Map for your own business. The Tool is the Stage Assessor plus the Instrument Matcher. Enter your revenue, margin, runway, and growth inputs. It produces your stage, lists the instruments that fit your stage, flags the instruments that do not, and gives you a structured evaluation framework for any specific offer you are currently considering.

This is not financial, legal, or investment advice. This is operator-level framework for understanding capital decisions. Specific capital instruments should be evaluated with your attorney, CPA, and where relevant, a fiduciary financial advisor.

Set aside sixty minutes. Assess your stage honestly. Match your instruments. Come back to Module 1.6 knowing what capital you actually need and what you do not.

Five stages. One assessment. A defensible capital decision that fits the business you actually run.

When the capital picture is clear, the rest of the pillar closes cleanly. Module 1.6 builds a plan that matches the capital structure you have, not the one you wish you had.

So start here. Assess your stage. Match your instruments. Then move on to Module 1.6.
