Choosing how to fund your business is one of the first financial decisions most startup founders make, and it has long-term implications. Depending on your goals and the type of funding you select, you can either keep control of your company or share ownership with investors. This article explores your options and outlines the typical terms of startup financing.
Startup financing comes from a wide variety of sources, each with different terms and levels of risk. Most commonly, founders will use their own personal savings or revenue to launch the business and begin building a customer base before seeking out further funds. This is often referred to as bootstrapping.
The next step up is securing pre-seed funding from friends and family or a startup accelerator or incubator program like Y Combinator or Techstars, which provides initial investment in exchange for equity ownership. This phase of startup funding is usually the happiest time for the founders, as they have no immediate financial concerns and can focus on innovating freely.
Seed investment focuses on the quality of the team and vision, product-market fit, and scalable operations. Series A investments are more focused on growth metrics, including strong customer retention and predictable ARR. By Series C, investors are looking for a clear path to an IPO or acquisition.
Investors expect a higher growth rate from startups at each stage, and the amount of equity dilution you’re required to give up varies by round. Regardless of your round, it’s essential to show a clear plan for how you’ll spend the funds to help ensure the company has a good chance of success.
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