Startup funding is the money needed to launch and grow a new business. It can be sourced from many sources, including small-business loans, venture capital, and angel investors. Startups must also consider their ownership structure, which can impact their ability to raise additional funds in the future.
Founders may choose to bootstrap their startup, in which case they fund the company with their own personal savings and any revenue they can generate from the product. Others may seek pre-seed funding, which typically comes from friends and family members willing to make a risky bet on the founders’ idea. Other early-stage sources include accelerators or incubator programs like Y Combinator and Techstars, which provide funding in exchange for equity. Finally, there are online or alternative lenders that offer startup loans with lower requirements than traditional banks.
Seed funding is the first official round of institutional investment for a startup. In order to secure this type of financing, startups must be able to show that their idea is viable, which can be accomplished through a working prototype and evidence of early user traction. VC investors also expect to see strong market data, including both TAM (total addressable market) and SAM (serviceable available market), as well as detailed competitive analysis.
Companies that successfully raise Series B and beyond often experience significant growth. However, this growth pressure can create intense demands on management to meet aggressive revenue targets and develop an exit strategy in advance of a potential public stock offering or acquisition.