Startup funding is the process of raising money for your business. This can be done either through equity or debt. Every company needs funding to run its operations and invest in growth. While it is possible for startups to be self-funded, most seek outside investment for this purpose. Investors will usually give capital in exchange for an equity stake in the startup. The type of investor and the stage of the startup will determine how much equity is given up.
Startups often seek pre-seed funding to build their team and get their infrastructure in place. This can include building a minimum viable product, conducting market research, hiring key employees, and getting legal documentations in place. This is also the time to begin seeking patents and trademarks. During this stage, it is also important to define and test their business model.
The Seed round is the first official funding round that a startup may receive from outside investors. It is at this stage that the startup should have proven traction and customer demand, and that they have a clear plan for how they will scale their product. Investors are looking for a revenue model that is profitable or at least cash flow positive, and a clear path towards profitability.
Series A funding often involves a more rigorous review of the company and its plans, including evidence that it can scale. It is at this stage that the startup will begin to consider a public offering, or an acquisition by a larger corporation. Series C funding tends to be used for global expansion, bringing with it intense pressure on the company to deliver growth rates and an exit strategy.