Startups require substantial funds to grow and reach profitability. Founders should carefully plan how much they want to raise in each round, taking into account key development milestones and the percentage of ownership that will be sold to investors.
Startup funding sources include personal savings, loans from family and friends, credit lines, venture capital firms, online lenders and nonprofit microlenders. Bank loans are best for startups that have steady revenue and assets to use as collateral, while credit lines are useful for short-term cash flow needs. Startups that are already well-established may be able to access larger amounts of money from investors in Series C and beyond.
Ideation (conception): During this phase, startups identify a market need or problem and brainstorm potential solutions. They focus on performing research and assessing market demand to refine their value proposition, develop a business plan and create a prototype or minimum viable product to test their concept.
Pre-seed stage: During this early-stage period, startups often seek investments from incubators or accelerators that provide workspace and basic business services in exchange for equity. Venture capital firms and angel investors also invest in this phase, with terms varying widely.
Seed stage: During this phase, startups typically seek venture capital funds to finance growth and further develop their products. They aim to achieve key milestones, such as demonstrating significant revenue growth and a clear path to profitability, establishing product-market fit and expanding their markets.
Once startups find traction, they usually enter the growth phase, investing in marketing and infrastructure to increase market share. They may also begin to explore debt financing to fund working capital without diluting equity. Investors in this stage include private equity firms, sovereign wealth funds and strategic investors.