of the first years of a new business, that people don’t usually know about. The struggle to get a business on its feet can cause enormous trouble for an entrepreneur, and it requires real determination, discipline, effort, and, right… money.
The other day, I talked with a friend who has recently launched his startup. Just like many of us, when just starting out, he had little experience with how he was going to acquire the money. He knew he would need investors because, well, that’s the first thing that comes to everyone’s mind. But he had no idea what exactly his options were, let alone how to actually find them.
If you’re navigating the funding process for your startup, there are a few things you might want to consider. First, do your research! This is the first and foremost step for your trajectory. Learn about the different types of funding available and especially what investors are looking for. Second, develop a solid business plan! Having a clear image that explains your business model and financial projections consolidates you as a serious entrepreneur. This is what investors want to see. Finally, network like crazy! Attend startup events, join entrepreneurial groups, reach out to your personal and professional network, and expand your network. You won’t get funding if people don’t know you or your idea.
We might think - “yes, there are options out there, but how can I reach them with no reputation for my business”? - And the truth is that, early on, chances are as entrepreneurs, we’ll have to use a combination of our resources and money borrowed from friends and family. It is mainly because no matter how many options of funding are out there, the reality is that investors will not risk money without a good reason and, certainly, without a well-established level of trust.
So we have 7 major options that will help us get our ideas to life in the first years of a business, and those are:
Bootstrapping
In the beginning, this might be our only option for supporting ourselves. This means that we will be using our personal savings or other personal resources, such as credit cards, to fund our startup. This can be quite challenging since not all of us can actually afford to sustain a business. But despite limiting our growth process, it can be a great start.
Friends and family
This option involves borrowing money from our friends and family members who believe in our vision and are willing to support us financially. However, it’s important to note that this option can strain personal relationships, and it’s essential to have a clear plan for repayment. Even more so, this can be quite risky since there is no guarantee of success nor of the ability to repay.
Venture Capital or Angel Investors
This is when things will get serious! Venture capitalists and Angel Investors are professional investors who provide larger sums of money to startups in exchange for equity. They often invest in companies with high growth potential and can provide valuable support, including mentoring, business expertise, and access to networks. However, they also typically require a significant stake in the company and have a say in how it’s run.
Incubators and Accelerators
These programs are specifically designed to support us, as startups, with various resources in our early stages of life. Incubators provide physical office space, mentorship, and other resources to help us grow, while accelerators typically offer a short-term program of mentorships and resources for rapid growth and scalability. Both incubators and accelerators may support us with funding, but it’s typically a smaller amount than what venture capitalists and angel investors would. Plus, with such programs, they may or may not ask for equity, nor do they have a complete say in how we run our business.
Crowdfunding
This option allows the founders to not give up ownership of the company but rather ask for a small amount of money from a large number of people. It usually happens on platforms dedicated to it, and entrepreneurs usually set an amount of money needed and a final date for donations.
Banks
Banks are a source of financing we see later on in the life of a startup. As entrepreneurs, we don’t want to get stuck in debt that we later can’t pay, so postponing a bank loan until the startup has a constant stream of revenue and a certain customer base might be a smart move.
Government Grants
With government funding, it’s all about luck sometimes. The process might be moving slowly, and bureaucracy is, well, annoying, to say the least. The good part is that grants are being offered for different sectors of the economy, and usually, we don’t need to pay them back when we get one. If we can meet the paperwork requirements, it might be really useful to gain some funds that can help our team grow, raise our marketing efforts and develop the product more.
Matching funding expectations with the reality of the startup stage can help us plan more efficiently.
There are stages of funding, and there are certain sums of money we can expect to gather at each stage. After all, it is rare for a startup to get millions of dollars in pre-seed funds. Once we understand where we stand, we can estimate the real sum of money that would make a difference in the evolution process. In this way, we can also focus on what is usually requested of a startup in each stage of funding to provide.
Going on this narrative, there are 6 major funding stages for our business:
- The pre-seed stage
- The seed funding stage
- Round A of funding
- Round B of funding
- Round C
- IPO stage - or “the dream of every founder.”
Startups with a great business plan and idea can expect two scenarios in the pre-seed funding stage. Either no investments from outside or the better scenarios where we spark some interest in an angel investor or early-stage VC.
Let’s assume the startup has 10 to 100 thousand dollars as initial capital. Sums raised, if any, can be expected to be more or less around 100.000$ but can be either much lower or much higher, with cases that reach up to $1 million.
The seed funding stage is where operations are growing at a faster pace. VCs, crowdfunding, and angel investors will be able to decide better if our idea, team, and business plan are worth investing in. Sums raised can vary from thousands of dollars to millions. Entrepreneurs use this stage to finance marketing and more serious product development efforts.
The product or service has a solid form, and our team and business plan are both trustworthy and planning to expand operations. We are eligible for a few rounds of funding stages that can propel our startup to the IPO dream.
In the Series A of funding, we provide better insights into why our startup will be successful in the long term, and we got some background to testify to it. Starting with Serie A, we might get venture capitalists and angel investors interested in obtaining a share of the company and investing sums of money worth up to a few million dollars. This can help solidify our customer base by bringing the products and services to the market and scaling up. Startups that get funding at this stage also get access to knowledge, networking, and expertise or advice.
Series B and C of funding can hook the interest of the investors even further. At this stage, we might also consider bank loans as we have a solid product and customer base and can afford to pay back the loan. Startups that reached this far want to increase profits and develop more, and sums raised can go up to the 100mil$ mark, paving the way for the final stage, the Initial Public Offering (IPO).
When companies are advancing to an IPO funding stage, they are turning from a private company to a public one. The idea is simple. Offering a part of the company value as shares for the public to buy, the once “startup idea” grows to reach its full potential. At this funding stage, the amount of money raised goes up exponentially, reaching billions of dollars, and our startup is now a Unicorn. Congrats on the hard work invested!
Remember! Securing funding for your startup is not going to be easy. But with the right approach, it’s possible to find the right investors who believe in you and your vision. And best believe they will want to help you succeed!
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