Starting a business and bringing it successfully to maturity requires lots of cash. Fortunately, it does not all have to be provided by the business owner. As a business grows, the sources of funding expand as well. Here’s what every start-up should know about the traditional rounds of funding
After an entrepreneur gets her big idea, the next step is to drum up enough cash to put the product or service together – to actually bring the idea to life. This stage of funding is often called the Seed Round, with money coming from the entrepreneur’s own savings, a home equity loan on his property, or from gracious and/or interested friends and family. This is the money needed to get off the ground.
First Round or Series A
After the business takes off and demand proves sufficient but the firm is not yet stable enough to turn a profit, business owners often begin what is called their Series A round of funding, otherwise known as first-round or startup financing. This is when angel investors start associating with the company, pouring badly-needed cash into the business in exchange for equity shares.
Second Round or Series B
As the business expands more capital will be needed for hiring new employees, marketing, and potential partnerships. At this point, businesses can open up a Series B round of funding or a second round to a new crew of investors. They will have to pay more for their equity stake than the initial investors did because the company is now worth more, but they still get the profits of investing in a growing, successful firm.
Series C, D, E…
Series B can be repeated as many times as necessary. With more and more investors putting in their capital and enjoying the benefits of being part of the company.
In all the funding stages, owners have to balance the cost of giving up complete equity control of their brainchild with the profits of growing a company sans having to fund it completely on their own.