Ignite VC: How to Choose the Right Funding Path for Your Startup with Stephanie Rieben

Episode 100 of the Ignite Podcast

In Episode 100 of The Ignite Podcast, we had the pleasure of interviewing Stephanie Rieben, Co-Founder and CEO of Diadem Capital. While some might prefer to listen to the full episode, this blog post distills the key insights for those interested in the world of startup fundraising, venture capital, and fintech. Whether you’re a founder, an investor, or simply curious about the state of the startup ecosystem, there’s plenty to learn from Stephanie’s journey and expertise.

Who is Stephanie Rieben?

Stephanie’s story begins in the fast-paced world of Wall Street, where she spent over a decade at financial powerhouses like Goldman Sachs and Citibank. However, it wasn’t long before she felt the pull of the tech world and pivoted her career toward fintech. In 2020, Stephanie co-founded Diadem Capital, a funding marketplace designed to help startups raise equity and debt, scaling from pre-seed to Series C. With more than $140 million raised for startups through her platform, Stephanie offers valuable insights on how to thrive in an evolving fundraising landscape.

The Shifting Fundraising Landscape: 2020 vs. 2024

One of the most significant themes discussed in the episode is the stark difference between raising capital in 2020 and today. In 2020, startups were getting money thrown at them with ease, but the fundraising environment has changed drastically, especially as venture capitalists grow more selective. Stephanie highlighted that fundraising timelines have lengthened—what used to take a few months can now stretch to nine months, especially for consumer-focused startups.

Despite the challenges, Stephanie believes that starting Diadem Capital at a time when fundraising has become more difficult has allowed them to offer even greater value to founders. More than ever, startups need help navigating complex funding processes, and this is where Diadem shines—bridging the gap between companies and investors.

Equity vs. Debt: What’s Best for Your Startup?

A key part of the conversation revolved around the debate between equity and debt financing for startups. While many founders default to equity, especially during early rounds, Stephanie advocates for a balanced approach. She explains that for companies with strong revenue, particularly those who raised money during the more optimistic times of 2020-2021, venture debt can be a viable option.

Debt allows startups to extend their runway and continue scaling without diluting equity, which can be particularly beneficial if they are not yet ready to raise at a higher valuation. However, she cautions that venture capitalists may not always be enthusiastic about debt since it can push them further down the capital stack. Nonetheless, it’s a strategy worth considering for founders looking to avoid diluting their stake too early in their company’s growth.

What VCs Are Really Looking For

For founders seeking investment, one of the most enlightening parts of the episode was Stephanie’s breakdown of what venture capitalists are actually looking for in startups. At Diadem Capital, every startup that applies goes through a thorough vetting process, and only about 4% of those who apply make it through to receive help raising capital. So, what sets these startups apart?

Stephanie highlights a few key factors:

• Revenue Traction: For pre-seed and seed-stage companies, hitting a revenue threshold of $500K to $1M is essential. By the time companies are ready for Series A, they should have at least $3M in annual revenue, and for Series B, the bar is even higher.

• Coachability: Especially in early-stage investments, Stephanie and her team look for founders who are coachable and open to feedback. While many successful founders are highly independent, a willingness to listen and adapt is crucial, particularly when scaling from seed to Series A and beyond.

• Market Size: Total Addressable Market (TAM) is still a key metric for VCs. Stephanie noted that many VCs won’t even consider a deal unless the market size exceeds $15 billion. While TAM alone doesn’t make or break a deal, it’s important for founders to accurately assess and present the size of their opportunity.

The Importance of Investor Matchmaking

Another unique feature of Diadem Capital is their approach to investor matchmaking. The platform functions similarly to Airbnb, where both founders and investors create profiles with their preferences and needs. Once startups have been vetted through a rigorous two-call process and due diligence, they go live on the platform, where investors can choose whether they want an introduction.

Stephanie emphasized that Diadem isn’t just looking for any investor—they focus on investors who can offer more than just capital. This includes strategic partnerships, introductions, and hands-on support. Founders are encouraged to choose investors who can help in meaningful ways beyond writing a check, such as providing insights on go-to-market strategies or opening doors to key enterprise customers.

Lessons Learned from a Startup Founder

While much of the episode focused on technical aspects of startup funding, Stephanie also shared some personal insights on the challenges of being a founder. Like many in her position, she juggles long hours and the demands of family life, often working until midnight after spending time with her children in the evening. Her passion for her work is clear, but she also acknowledges the pressures of making tough decisions daily, balancing short-term needs with long-term growth strategies.

As Diadem Capital scales, Stephanie’s focus remains on building innovative products and expanding the firm’s reach. In the future, she hopes to make Diadem a one-stop shop for private market deal flow, serving companies from pre-seed all the way to pre-IPO.

Key Takeaways for Founders and Investors

1. Fundraising is tough, but strategic guidance can make a big difference: With the right approach, even in challenging markets, startups can find success. Diadem Capital's process is designed to support founders in every stage of their funding journey.

2. Consider debt as a non-dilutive option: For companies with strong revenue but challenging valuations, debt financing can offer a path to growth without sacrificing equity.

3. VCs are looking for more than just growth: Coachability, market size, and traction are essential, but the personal qualities of the founder can make a big difference. Being strategic about investor relationships can help startups grow in meaningful ways.

4. Matchmaking between startups and investors is crucial: Not all money is the same—finding the right investor who can offer strategic value can be the difference between just surviving and thriving.

Final Thoughts

While Stephanie Rieben’s journey is deeply rooted in the world of high finance and tech startups, her insights are applicable to any entrepreneur navigating the tricky waters of fundraising. Whether you’re a seasoned founder or just starting out, understanding the nuances of how capital flows in the private markets can give you an edge in growing your business.

👂🎧 Watch, listen, and follow on your favorite platform: https://tr.ee/S2ayrbx_fL

🙏 Join the conversation on your favorite social network: https://linktr.ee/theignitepodcast

Chapters:

• Introduction & Episode Milestone (00:01 - 01:20)

• Stephanie’s Background: From Wall Street to Fintech (01:21 - 05:00)

• Founding Diadem Capital: The Vision and the Pivot (05:01 - 10:30)

• The Current Fundraising Landscape: 2020 vs. 2024 (10:31 - 15:00)

• Equity vs. Debt: How to Choose the Right Funding Strategy (15:01 - 21:00)

• Diadem Capital’s Vetting Process: How to Qualify for Funding (21:01 - 26:30)

• Matching Startups with Investors: A Data-Driven Approach (26:31 - 31:30)

• Advice for Founders: Navigating the Challenges of Fundraising (31:31 - 37:00)

• The Future of Diadem Capital: Scaling the Platform (37:01 - 42:00)

• Rapid-Fire Questions & Closing Remarks (42:01 - 44:36)