How To Start & Grow Your Business

The Startup Fundraising Journey Explained

  • Estimated reading time: 2 min read
  • Hummy's
    Highlights

    1Getting VC is a multi-step, performance-based process. 2Crowdfunding can be a precursor to attract VC later. 3VCs still primarily prioritize funding tech startups.
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Fund Raising

Words on blocks-startup project concept Photo Credit: Jirsak Shutterstock

Obtaining startup capital is extremely competitive. There simply aren’t enough interested investors for every great idea. As an additional challenge for those outside Silicon Valley, the dollars disproportionately gather in the direction of the tech world.

Fortunately there are innovative new ways to raise capital, among them equity crowdfunding. In an article on Forbes.com by contributor Will Schroter, the author writes that Startups can draw on a mix of funding sources.

He gives a step by step overview of the process.

1. “The idea stage”

In the beginning, Schroter writes, “Typically, startup founders first approach friends and family to raise an initial seed round. This usually occurs during the idea stage of a startup.”

He says that crowdfunding can be a smart move at this stage; it helps you grow and attract later stage venture capitalists. Also equity crowdfunding enables you to provide value to your first investors.

2. “Later stage seed funding”

“Later stage seed funding often comes from angel investors, who make their decision to invest based on a startup’s traction (sales numbers, notable press mentions, etc.), as well as an affinity toward the entrepreneur,” Schroter continues.

3. “Post seed round”

Finally, after your company is demonstrating real potential–i.e. you’re profitable and growing–you’re in a position to pitch to venture capitalists.

Venture Capitalists and firms invest in companies at this time, hoping for an eventual sale or IPO so that they can make a large return on their investment,” Schroter explains.

They’re cautious for good reason; 75% of startups fail. VCs therefore want to want to see some evidence that your company won’t be one of that 75%.

Schroter concludes by saying that startup funding is an exciting journey and “early stage companies now have more tools to raise capital than ever before.”

To read the original article in its entirety, please visit Forbes.com.

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From the Editor's Desk

This article was written by a bizHUMM Staff Writer. We aim to provide practical tips that help solve your burning small business questions. If you have any suggestions or ideas for articles, please email them to: editor@bizhumm.com