There is no universal funding prescription to apply to any startup. Companies can get revenue both early and late, and everything may work out fine in both cases. We will start talking about how startup funding works by presenting TYPICAL funding rounds and explaining venture capital.
Everything changes round by round, but the money in the early rounds like Pre-seed is always expensive, and venture funding saves many unnoticed or neglected innovations. Be careful and spend this money wisely: hire juniors with adequate portfolios, delegate responsibilities, address presentation services, or try to find volunteers who need experience.
Startup funding rounds or stages include:
- Series A funding.
- Series B funding.
- Series C funding.
Every time the round is made, new shares are issued, and all the existing shareholders are diluted. For example, a company is worth a million dollars, and the founder has the greater share. However, getting great investors on the board on every single round changes the total ‘pie’, but it is worth it in perspective. Be careful with giving away too much in the early stages like Seed round to remain motivated.
Round size, equity, and valuation of each change and rise accordingly to a specific stage. If you’re interested in how series A funding works, as well as series B and Series C, feel free to find articles on every round in our blog and get to know all important characteristics in detail.
How VС Funding Works
In this article, we’ll pay attention to venture capital fund peculiarities. Thus, venture capitalists appear at any stage if they notice some product or service possible to reshape markets and grow very fast. Commonly, such investors are people from big corporations or independent wealthy personalities. If they see that benefits outweigh potential risks, they invest in the idea. You should better have a business plan, product roadmap from a pitch deck designer, and real achievement of what you’ve done so far.
Venture capital is a high-risk game for investors who love tech, but they know how high-reward it could be. They are interested in tech startups especially because they scale up easily and achieve the expected success. The easiest money comes playfully, and investors know this principle well to allow themselves to contribute to precarious but promising projects.
Bonus Info for the Most Determined Entrepreneurs
We do not recommend the last method, but it is how real life works. Some startups create a pool of money based on either personal debt or revenue from their customers. As for personal investments, it means collecting a bunch of credit cards to pay salaries. As for the second option, some pitch products in the market with the limited product before raising money. Thus, they see if customers even want this thing. Going into debt might lead to wasting years of your life and product development, so customers should be your main guiding line when inventing a service/product.
✓ By not raising money, you maintain control and get the freedom to do whatever you want.
⊗ By raising money, your startup becomes more of a job that gives you employees and duties.
Access risks wisely, do not decide under emotions and find an experienced mentor. And always believe in yourself!