Before taking out a loan or taking on investors, look for debt-free funding sources like grants, contests, crowdfunding & self-funding for your new business or project. Pre-seed funding helps get operations started. Grants.gov, Pivot Funding Database, Patreon, alumni associations, trade associations, private foundations, Gofundme and Kickstarter are common sources of non-repayable funding.
Seed funding, the first official equity funding stage, typically finances the development of key products or services. Most businesses raising seed funding are valued between $3-6 million and can raise between $10 thousand to $2 million depending on industry and specific startup. With low accuracy, the valuation of startups with no revenue is calculated based on comps and working back from how much cash is needed. When speaking with investors, look for interest rates that are lower than what you’d get through traditional leading or some other significant advantage. If you’re offering stakes of your company be mindful of any required return. Sba.gov, Angel Capital Association, National Venture Capital Association, AngelList, and business incubators are common seed funding sources.
57% of startups are funded by personal loans and credit, while 38% receive funding from family and friends. Only 0.91% of new businesses are funded by angel investors and 0.05% by VCs (Fundable, 2013). Do not take on more debt than you need or can realistically repay. Project the needed sales, accounting for costs, plus timeline for loan repayment. When you invest a portion of your initial funding in the stock market, the long term gains can help paydown subsequent loans. Especially if the return rates that you’re receiving are higher than the interest rates that you’re paying.
At BONUM, we specialize in seed funding while building strategies and a track record for Series A.
Series A funding, used to optimize user base or service/ product, is sought once a company has developed a track record with customers, consistent revenue, or some KPIs. At this stage investors are looking for strong strategy in creating a money making business, not just great ideas, and raises between $2-15 million with companies valuing up to $23 million. Well-known venture capital firms that participate in Series A funding include Sequoia Capital, Benchmark Capital, Greylock and Accel Partners.
Series B funding, for expanding market reach, is for companies that have proved to investors that they are prepared for large scale success. The capital raised is around $33 million with valuations between $30-$60 million. This stage attracts investors who specialize in later-stage investing.
Series C funding, focused on rapid scaling of success, is used to develop new products, expand into new markets or acquire other companies. Basically, companies valuing around $118 million and gaining up to hundreds of millions of dollars in funding are prepared to continue to develop on a global scale. Many utilize Series C funding to boost their valuation in anticipation of an IPO. Along with the previously mentioned investors, this stage attracts hedge funds, investment banks, private equity firms, and large secondary market groups looking to double their investment.
Companies that continue with Series D funding need a final push before an IPO or they haven’t been able to achieve Series C goals before needing additional financing.
Thank you for reading, Beyond Business: Musing from a socially conscious international small business.