If you’re like many entrepreneurs, then you understand the importance of having startup funding. Many of which wonder how to get startup funding with so many economic concerns and high interest rates after 2020. Well, the answer is actually pretty straight forward, but the process can get technical depending on how you source the funds. To put it simply, there is no “right” way to get startup funding. However, there are some important factors to consider when evaluating a loan or any kind of financing. Funding for startups is about finding the right people and the right markets. When both of those align, it is far easier to secure the funds that you need.
That being said, there’s a reason why so many startups fail. They are time consuming and quite costly depending on the industry. Let’s dive into the multiple stages of startup funding and how to find the right sources for startup capital.
The Stages Of A Startup
- Pre-Seed
- Seed Funding
- Series A
- Series B
- Series C
- Series D
- Initial Public Offering
For those who aren’t familiar with these terms, don’t worry, we’re going to explain these technical terms.
Pre-Seed Phase
This is a fairly self-explanatory phase of a startup. This is the portion of time that the startup business needs to become established and get off the ground. The primary issue lies in where the money comes from and whether the operation has enough support. If the business is run by one person and all of the funds are sourced from the individual’s own pocket, this phase can last an extended period of time. This is where many startups begin and end. Getting past this portion of a startup’s lifecycle is paramount! Sometimes this phase is shortened with fast startup capital, which is why most are looking for startup funding in the first place.
Seed Funding Phase
This is the phase many startups never get to. They never make enough progress and or receive enough capital to actually plant the “seed”. The seed is essentially the investor capital that they need to expand their operations. It is critical to note here that if a startup doesn’t have the plan, intention, or the scalability to turn into a business worth more than 50K, it is probably never going to get there. To build something worth this much, proper systems and a good team is needed. This is the pivotal moment where a business needs capital to expand into something bigger. But there is risk involved. The possibility of failing is still present, which means investors are going to be skeptical of lending money.
Series A Stage
This stage of funding is going to be more about long-term planning and goals than anything. Turning a wonderful idea into something profitable over an extended period can be lucrative. (This is also why business loan brokers are becoming so popular, they have connections to investors who would be interested in loaning money like this) Of course, a measure of a business’ success is also about the people involved. Having a good team or at least showing that competent people are involved in the project is crucial.
Series B Stage
This stage of startup funding is pretty straightforward. If a business makes it this far they have successfully established themselves in the eyes of investors. Many are more than eager to fund startups in this phase because the risk is far lower. This phase marks when a business is trying to innovate. This is the late stage for venture capital. Having the right connections is important since not every investor is going to qualify as a late venture capitalist.
Series C Stage
This stage marks a time when a business isn’t looking for funds to expand their successful operations and reach new markets. It is hardly a challenge to find investors who will support a startup in this phase. The success of this business is established, they have innovated, and their markets are profitable. This is still a speculative loan, but the chances of success are quite high, which makes this a desirable investment for most.
Series D Stage
The only reason a business needs to seek funding in this stage is for special circumstances to hit specific goals. An example might be for a merger. However, this stage only applies for a corporation that hasn’t gone public. Which brings us to the next and final stage.
Initial Public Offering (IPO)
The benefits of this stage can be extravagant. There’s obvious perks to having investors sinking money into owning a percentage of the company (which they pay a large sum to do). This is a fabulous way for a well-established business to raise capital and a large amount of it! There are actually several sub-phases to this stage. Besides the legal aspects of selling a percentage of ownership, there are technical aspects that must be worked out.
The following is usually needed:
- External public offering team.
- Detailed company history and projected future.
- Audit of the company’s finances. (This also creates an opinion of the public offering)
- Specific date for going public.
The benefits of an IPO are as follows:
- Massive amounts of funding can be generated through offerings.
- Before a company goes public, executives or valued employees can often be enticed to work by giving them stock in the company. When the company goes public, the stock could dramatically go up in value.
- Mergers are usually easier when the company goes public.
If you remember the following rules, then you will comprehend how to get startup funding much easier.
- A startup business with little background is considered “higher risk”.
- Forming valuable connections with investors can be time consuming, but highly rewarding.
- A loan broker can make every stage easier, though the real benefit comes from having someone to negotiate for you. They only get paid when the loan is issued.
- With every stage the business increases its credibility and has more opportunities.
Let us know if you have any questions and we’ll get back to you asap!
