If you're a startup and seeking funding for the first time, you may find yourself knee-deep in jargon and unfamiliar phrases.
This post aims to demystify the various stages of fundraising and help you understand the startup funding landscape and the language used.
Too Long; Didn't Read (TL;DR)
The article summarizes the different stages of startup funding, from bootstrapping to Series D, and outlines various alternative funding avenues like angel investors, crowdfunding, grants, and venture capital. It also cautions that seeking startup funding can be a complex and time-consuming process, requiring careful consideration and expert advice.
A chance remark at a finance industry panel triggered my journey of discovery to understand the challenges and pain points associated with startups and fundraising.
It only took me a short while to discover that unless you have a finance background or know someone who does, the struggle to identify potential investors is very hard.
The process of identifying investors who match with your business, crafting a compelling approach, determining the funding amount, developing a persuasive pitch deck, delivering presentations, and subsequently awaiting a response is time consuming, stressful, can take a considerable mental toll.
The last thing you want is to wade through a ton of jargon and phrases and be too afraid to ask or to be seen as ignorant. Especially if you have an idea or product in development, that's going to change the world.
The good news is, you're not alone. Raising funds is just another hat startup founders have to wear if they want to scale their business.
Explained: Startup Funding Stages and Options
Here is a list of common startup terms explained in stage order.
- Bootstrapping
Self-funding the business. Funds provided by the founders or through the revenue generated by the business, avoiding external financing. - Pre-Seed Funding
Initial capital to start the business. Funds used to develop the idea, conduct research, and create a business plan. - Seed Funding
Early-stage capital to develop the product with funds used for product development, market research, and building the initial team. - Series A Funding
Funds used for scaling the product, expanding the team, and refining the business model. - Series B Funding
Growth capital to scale operations and expand market reach, enhance product features, and increasing sales efforts. - Series C Funding
Capital to expand and used for large-scale expansion, entering new markets, and potentially acquiring other companies. - Series D Funding
Funds used for scaling even further, preparing for IPO, or addressing specific late-stage challenges.
[If you're curious about the average dollar amounts raised in Series A to D funding rounds, according to the U.S. market - and depending on the industry, growth stage, market size, competition, etc. - the amounts are:
- Series A: US$2 million - US$15 million (average)
- Series B: US$10 million (average)
- Series C: US$20 million (average)
- Series D: US$50 million (average)
[Sources: Investopedia, JoinARC, Startups.com, and Visible VC]
Alternative Funding Avenues
Outside of the traditional venture capital pitch process, there are a considerable number of other financing in the startup funding landscape:
- Angel Investors
Ultra / high net worth individuals who invest in early-stage startups. - Bridge Financing
Short-term capital used to bridge the gap between larger funding rounds or to address immediate financial needs. - Corporate Venture Capital
Investment from larger corporations that see strategic value in the startup. - Crowdfunding
Raising funds from a large number of individual investors through platforms. - Crowdsourced Lending
Peer-to-peer lending platforms that connect startups with individual lenders. - Debt Financing
Funds borrowed from banks or other financial institutions, to be repaid with interest, without diluting ownership. - Equity Crowdfunding
Raising funds from many investors through online platforms. - Family Offices
Private investment firms that manage the wealth of high-net-worth families. - Grants
Funding from foundations, or other organizations. - Incubators and Accelerators
Programmes that provide funding, mentorship, and other resources in exchange for equity. - Initial Coin Offering (ICO)
Raising funds by issuing cryptocurrency or digital tokens. - Initial Public Offering (IPO)
Public offering to raise capital by offering shares to the public, typically used for significant expansion and to provide liquidity to early investors. - Micro-VCs
Smaller, more specialised venture capital firms that focus on early-stage startups. - Revenue-Based Financing
Funding based on a percentage of the startup's future revenue, rather than equity. - Venture Capital Firms
Professional investment firms that provide funding in exchange for equity. - Venture Debt
Loans from banks or specialised lenders, often used to bridge the gap between funding rounds.
This article covers the main startup funding options, and there are others worth exploring as well. For example, many governments offer grants, tax credits, and other incentives to help startups get off the ground. Then there are the traditional funding of small business loans, debt financing and more.
Please note that this article is for general informational purposes only and does not constitute professional advice. When seeking funding for your startup, it is recommended to consult with qualified financial, legal, and business advisors to ensure you make informed decisions that align with your specific circumstances and goals.
About Ivan Theodoulou
About Ivan Theodoulou
Ivan Theodoulou is founder of Eight PR, a PR agency in Hong Kong that specializes in tech, law, and corporate PR. He first visited China in 1987 by train from Hong Kong to Guangzhou and has since traveled extensively on the mainland and in the Greater Bay Area (GBA). Ivan passed his China driving test in March 2024 and now drives regularly in the GBA.
Places visited in China (by car, plane, train, high speed train, ferry, coach, bus) include: Beijing, Beijou, Chengdu, Dali, Daya Bay, Dongguan, Foshan, Ganzhou, Gaoming, Guangzhou, Hainan, Hailing Island, Heishan, Huizhou, Junan, Kunming, Lijang, Longjiang, Nanhai, Shanghai, Shenzhen, Shilin Yi, Shunde, Wuzhou, Xiamen, Yingde, Yinghe, Zhuhai, Zhaoqing.
As a side venture, Ivan is an ambassador for Funds Sniper; a subscription-based search engine that allows startups to find potential investors, secure funding for expansion, and M&A professionals, financial advisors, and funds of funds to identify relevant funds for their clients' needs or investment portfolios. Use amb-ogFFA for a price reduction when signing up.