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Starting a business and going out on your own has never been easier than it is today. The last decade or so really opened up the floodgates for entrepreneurs, sole proprietors, and freelancers. Even mainstream media bit into the buzz floating around the world of freelance and entrepreneurship. The popular TV show Shark Tank, for example, is about a group of venture capitalists who take pitches from small business owners and entrepreneurs for investment. The show has plenty of drama, plenty of high-stakes, and plenty of good reviews. The popularity of entrepreneurship can somewhat be tied to the emergence of the internet and the smart technology that followed suit. These major technological advancements opened up access to resources, information, and networks that were previously untouchable for the average person.
With all the excitement there is about startup culture, small business ownership, and freelancing, you might be considering joining the entrepreneur race, if you will. As such, you might also be wondering how in the world you can get funding for your venture to get things off the ground. The following are a variety of funding resources/stages that businesses go through in order to develop and establish their operations.
“Companies always seek sources of funding to grow their business. Funding, also called financing, represents an act of contributing resources to finance a program, project, or need. Funding can be initiated for either short-term or long-term purposes.”
– The Corporate Finance Institute –
Sourcing Pre-Seed Funding
The initial funds that a startup organization or new business venture gathers is typically regarded as seed-funding. This is money that will often come from the founders of the business themselves, their friends, and sometimes even their families. This is the money that is used to really get the ball rolling with the business and help the founders set up the basic operations.
While it can sometimes feel awkward to ask friends or family for pre-seed funding, if you’re truly confident in your business idea, strategy, product, or service; then this conversation should be a lot less awkward. Not only that, but the people who are closest to you should have the easiest time being honest with you. As such, this is also a good time to garner feedback to see if you’re on the right track with the brand that you’re envisioning. If you’re open minded, this feedback can lead you to productive pivots that benefit your budding business in the long run.
“Yourself, your friends, and your family. Those are really the only places that any sort of pre-seed money is going to come from. At that stage, you really don’t even have a business yet. You sort of just have an idea, and hopefully a good one at that.”
– Miles Beckett, CEO and Co-founder, Flossy Dental –
One benefit of using pre-seed funding, though, is that it allows the founders to really control the direction of the company in its entirety. This will help the founders define the organization in their own vision as they take steps to realize the business. Following pre-seed funding is a seed-round of investments. This is the first official round of investment funding and provides the founders with the resources they need to elevate their operations.
Seed funding can be used to further product development and market research, as well as expand the business strategy and cement sustainable operations. At this stage, investors will likely be buying equity in the company itself, rather than expecting a quick turn around on profit or ROI.
“Seed funding is a crucial part of the startup process. It’s important because as the business owner you want that seed funding, but you also want to make sure you’re choosing strategic partnerships, since these investors will be walking away with equity in the company.”
– Omid Semino, CEO and Founder, Diamond Mansion –
Series A Funding and Beyond
After pre-seed and seed funding comes more official rounds of investing. Typically at this point a brand will get into what’s considered series funding. Series A funding is the first round in this type of funding and is still considered a round of early-investing. Series A investors generally take a more hands-off role than seed-investors, though, and also have a little less say over the direction of the company in general.
“Every once in a while a series A round of investing will be pitched directly to the big capital firms that the brand is targeting, but more often than not these investors get referrals from the seed-investors.”
– Jesse DeBear, Fractional CMO, Renew –
Beyond a series A round of funding, an organization can also plan additional investment series from B to C, to D and beyond. As the series of investment rounds progress, so too do the dollar amounts being exchanged. By the time a company reaches series D funding the figures can reach into the hundreds of millions.
“You have to be fairly well established and successful in order to reach a series D round of investments, but this can be a really great strategy to help you ramp up for an IPO.”
– Jeff Goodwin, Sr. Director, Performance Marketing & E-Commerce, Orgain –
Going Public
After establishing success with private investors through rounds of seed funding and series investments, many organizations decide to take their company public. Going public is industry jargon for releasing shares of company equity into the open stock market. When going public, an organization will have to plan for an IPO or initial public offering.
“Going public can be an awesome way to see a massive influx in cash. There are some downsides with going public, though. One of the biggest being the pressure to perform profit-wise for the sake of the shareholders.”
– Cody Candee, Founder and CEO, Bounce Luggage Storage –
An initial public offering is the first time that a company becomes available on the publicly traded stock market. When a large and well-established company goes public, it garners a lot of traction, and can create a big buzz in the stock market and trading industries.
“There is some finesse in timing an IPO just right. You want the economy to be in a welcoming place, you want your cash-flow to be in a strong position, and you’ll likely want to launch an IPO on the back of another organizational success, announcement, or achievement.”
– Ryan Rottman, Co-Founder and CEO, OSDB Sports –
Crowdsourcing
Crowdsourcing is a really amazing option for a lot of startup organizations and entrepreneurs who don’t have access to much pre-seed funding themselves. Crowdsourcing or crowdfunding uses the power of the masses, and the internet, in order to distribute your message and garner pre-seed funding that can be used for product development, market research, and manufacturing operations.
“Crowdfunding can be great. It’s just a unique way for someone to get their company off the ground. It truly offers anyone with a good idea a platform to share that with the industry and see if it’s viable.”
– Baris Zeren, CEO, BookYourData –
Some of the popular crowdfunding platforms include IndieGoGo, GoFundMe, SeedInvest, and MightyCause. Each of these platforms caters to a niche-market of startup founders and entrepreneurs, and could help you win the funding you need to realize your next big idea.
“There have been some amazing projects and companies that got their start with crowdfunding. I think there are elements of crowdfunding that could be essential to the future of investing strategies in general.”
– Alex Novak, CEO, SexLikeReal –
Angel Investors
An angel investor is one of the best types of fundings you can find. Angel investors are individuals with extremely high net-worths, extensive professional networks, and well-established business success. Taking on an angel investor can truly help you bring your organization to the next level.
“Angel investors are great because they can take on such an active role in the organization. Because of the fact that it’s just an individual, there are a lot less hoops to jump through paperwork and bureaucracy wise as well.”
– George Fraguio, Vice President of Bridge Lending, Vaster Capital –
Since angel investors come into the picture with passion and belief in your brand, they’ll be more willing to take on an active mentorship role. This can be extremely beneficial for your overall growth as a business person because you have a chance to learn from someone who has already walked that road.
“Real business people, no real leaders, are never done learning. No matter how far they’ve come, how many organizations they’ve led or started, or how much money they’ve made. A true leader never stops learning.”
– Christy Pyrz, Chief Marketing Officer, Paradigm Peptides –
Wrapping up on Business Funding
With the current economy small business ownership and entrepreneurship are extremely popular options for the working professional. Finding the funding for these ventures, though, isn’t always easy. If you evaluate where you are in your business journey, you should be able to determine which type of funding is right for you to pursue.
