A study from 2022 showed that one of the major reasons why most startups failed is due to a lack of funding.
So what do you do if you’ve got a startup and need to seek venture capital? You should look into the startup funding rounds. This is when you seek out an angel investor or other investor to help you launch your business.
But what are the different funding rounds you should know about? What’s the entire process of securing funding?
Here’s what you need to know:
Series A funding is when investors can give funds to your business in exchange for a stake. This is often the easiest type of funding you can receive.
This is when you can reach out to your friends and family to ask them for funds. You can also reach out to small-time investors and financiers to seek funds.
The best part about this type of funding is that you don’t have to pay back any loans. However, you also want to be careful about giving away too much equity. Make sure you always own at least 51% of your company so that you can be in complete control of it.
On a side note, make sure you also get a copy of your earning transcripts. This will help you look at the economic outlook for the upcoming financial period.
Series B happens when your company has been around for at least 1 year. With this route, your current investors will reach out to other potential investors.
This is when you can start receiving larger amounts of money for your business. You can expect to receive a minimum of at least $10,000, in most cases, with Series B funding.
With this process, however, your company has to be valued first. You’ll have to hire financial experts who’ll analyze your company’s financial health. This financial report is your company’s valuation.
You’ll only get what your company is valued at. For example, if your company is valued at $1,000,000 you might not get funding above $100,000. You may wish to postpone Series B funding until your company scales.
This is the final seed round of venture capital funding and is only reserved for successful businesses.
You’ll have to expect to wait at least 5 years before you can consider applying for Series C funding. You’ll have to show your company’s valuation to potential investors.
You’ll also have to show them case studies that present your company’s success. For example, when Facebook wanted funding from Peter Thiel, they could only do it because the website had over 1 million users.
In many cases, Series C funding won’t be necessary for the average small business. You’ll need it if you want to scale your business to the size of a corporation. If you wish to take your company public, you might need to secure Series C funding first.
Companies that seek Series C funding often have an international presence. If you feel your company can’t succeed overseas, then you likely don’t need Series C funding.
Now let’s look at some of the other ways to secure funding for your startup.
Crowdfunding is rather similar to Series A since you’ll reach out to a network of people to receive funds. This is the most hassle-free option since you aren’t obliged to pay anyone back.
But what differentiates crowdfunding from Series A funding is that you aren’t obliged to give equity to your funders.
For example, you can use a crowdfunding platform such as Kickstarter or Patreon to raise funds for your startup. You’ll then offer incentives to your funders.
Let’s suppose you run a video production company. You can offer credit to your funders in each of your videos. It can be something as simple as giving credit for every $5 donation.
Of course, you’ll want to receive higher donations as well. For this, you want to give more incentives. For example, for $10 you can give your funders credit and a digital copy of your videos.
If they give $100 you can give them executive producer credit. You can also give them credit on your channel’s IMDB page. The higher the tier, the more status you want to give your funders.
Make sure you also honor your end of the deal with crowdfunding. While it’s much easier to receive funds, your reputation is also on the line. You should only offer incentives that you know you can give without issue.
You also have to realize that in some cases, you’ll have to return the funds if you’re unable to meet your goal or complete your projects.
Best Practices for Funding Rounds
Let’s end this guide by discussing what you need to do to succeed with any upcoming funding rounds.
When looking for Series A funding, it’s likely that you’ve just started your business or you haven’t begun it. Prepare a business plan to show a potential angel investor.
You’ll also have to figure out how to prepare a sales pitch. For all 3 seed rounds, you’ll have to present a case on why an angel investor should shell out cash to your company.
Oddly enough, for Series A, it’s the hardest since you don’t have much to show. You’ll have to showcase why your company has potential. You’ll have to show why your products or services are needed in the market.
Make sure you receive testimonials and customer reviews early on. This is a great way to build your company’s reputation. This will make it much easier to secure funding for the future.
Get Money to Make Money
Now you know the different funding rounds and how they work to help you scale your business.
Series A is perfect for the beginning venture. For Series B and Series C, your company will need to be established and have a good reputation.
You should also look into different methods for funding your business ventures. Look at crowdfunding as an initial option for your startup. Make sure you also follow our best practices to succeed in securing funds.
You’ll find more great business and finance tips on our blog.