Startup funding can be difficult to understand. I’ve made it my mission to help others understand this process in hopes of seeing more entrepreneurs find success with their startups. Even though I started a small business crowdfunding platform that can seem separate from the typical startup funding process, I’d like to point out that they can actually be complimentary…and should be.
Today we will breakdown some of the beginning stages in funding, how they work and how you can make them work for your business
Friends/ Family – Self Funding.
This is where most entrepreneurs start because it is difficult to get loans for a brand new small business. Yet it does cost money from the beginning, so where do you find the funds? Friends and family can be a great source if they believe in your vision behind your business. If you have the savings, you can also self-fund. This is also a great point in your journey to start a crowdfunding campaign, you have to be able to make a strong argument as to why your business is needed for your community and hope that others believe in it!
Once you’ve got your business off the ground (very early stages), you can do what’s called a pre-seed round. This is where you’re pitching to investors, in hopes of giving them a percentage of your business (equity) for a sum of money. This is an interesting round for entrepreneurs and investors because there’s typically very little information available such as sales and performance.
Investors will focus on the strength of two parts here due to the lack of information available. The team and the idea. You can have an amazing idea, but if your team has very little experience or lacks the ability to adequately communicate how you will execute the idea then this could be a troublesome round for some. This is where a PitchDeck comes in handy because it gives the investors a visual roadmap to how you will scale the company and get them their money back plus more.
This is where the fun begins. If you’ve made it to this stage strap in…it’s going to be a wild ride. This is the first official round of funding for most companies. This round of funding is typically used to help fund R&D, market testing and validating the concept. This is still a high-risk round for investors, so you might be trading a decent percentage of your company for funding at this point. Yet as I always say, one half of a watermelon is still more than all of a grape.
Many entrepreneurs and small business owners don’t make it to this point. If you do, congratulations! Series funding is typically broken down into a few different rounds and the valuation of your company should adjust with each round.
Series A is for companies that have a great idea and have shown some execution.
Series B you’ve not only shown great execution but have also show clear & consistent revenue numbers.
By the time you reach Series C, you’ve shown great execution, expanded your market and are scaling at (hopefully) a rapid pace! The series funding can lead to a possible IPO (Initial Public Offering) if the company decides to go that route. That’s an exciting concept that most entrepreneurs dream of from Day 1, but don’t get ahead of yourselves just yet.
Here we’ve broken down each round, looking at the big picture it can all seem overwhelming but when you take it one step at a time it is all attainable. Start your journey somewhere entrepreneurs, take that leap of faith and believe in yourself!