Let’s talk about business funding
May 1, 2019 | Education
We talk a lot about pitching around here. In fact, we have events where all we do is talk about pitching. It’s important to us because, despite opening more successful businesses than ever, women are still wildly underfunded at VC level. We want to provide the resources for women to write the story of their own success and arm them with everything they need to go get that capital.
But what exactly are the levels of funding that businesses can pitch for, and how does it all work?
A common misconception about business growth is that it is achieved organically. You get a few orders for your products, you update your site, you get more orders, you invest in a brick and mortar store, your company grows, you rent more premises, hire a robust operations team and get a fancy chair in your office.
A small number of businesses grow this way, but for the most part, founders are able to scale their businesses quickly by applying for funding throughout certain stages of their development and get the resources they need to level up to the next milestone.
A pre-seed round is an informal pre-institutional seed round. Your business is usually just an idea that needs to get off the ground at this stage, and investment can come from friends, family or a personal loan. Most of the time, this type of investment isn’t made in exchange for equity in your company.
If you have a large network of people who believe in you and your business, you could choose to try crowdfunding, by which lots of people invest a small amount of money to make up your funding round, usually facilitated by a crowdfunding website like Kick Starter, Indiegogo, or Patreon. In return, you can offer your investors a selection of your products (even if they’re still in the development phase) or a small amount of equity in your company.
An angel investor might use their own personal wealth to invest in your company at an early stage in exchange for equity. According to 37 Angels, an angel typically invests $25 – $100k per deal.
Venture capitalists pool their resources into firms or funds as partners and decide which companies to invest in as a committee. They seek out companies that are in their early stages with high growth potential. Venture capital is hard to find and even harder to close, but venture capitalists can often offer help beyond funding; with strategic insight and partnerships. Finding a venture capitalist whose investment efforts aligns with your industry is important.
The seed round is your first institutional funding stage. It is an important time for your company as you work to gain traction. You might apply for funding at this stage to cover things like new product testing, research and development, or to make essential hires.
You can apply for funding from an angel investor, a targeted fund or a larger seed venture capitalist. Funding for a seed round can range from $10k – $2M, depending on the type of company.
By now, your company has a strong proof of concept and a good track record–a consistent customer-base or revenue figures. You may need funds to optimize on your success, bring new products to market, or expand your reach.
Investors know that you have a good idea but will also be scrutinizing your strategy. Money might come from traditional venture capitalist firms and, potentially, angels. Sometimes investors from your seed round will participate.
Your series B round is all about building. You may need to expand your team, expand geographically, or ramp up your advertising or technology.
You might raise tens of millions in this round. Series A and Series B are similar in terms of processes and key players, but you may find that Series B is more suited to some venture capital firms specializing in later stage investing.
Well, you’ve made it to the big time! You’ve banked your millions, your top 30 Forbes article is hot off the press and your product is in the homes of all of the people you went to high school with. Series C will likely be your last round of funding.
You will probably use this round to expand your market share or position in anticipation of an IPO (the initial sale of a privately held company’s stock to the public). Investors know that your business works and is profitable, and they’re looking at hard data to determine its future. At this stage, you might be working with the biggest late-stage venture capital firms or corporate-level investors. The process is grueling as investors want to do their due diligence, but hey! You’ve made it this far.
Whether it’s your Kickstarter video or a meeting with one of the top VCs in your industry, you’ll need to tell a carefully crafted and well-researched story about why you–not just your business or idea–are a good bet. Join us on May 14 at our next peer-to-peer pitch night for actionable strategies and insider tips from pitch expert and entrepreneur, Stefan Loble, followed peer-to-peer pitch practice and networking opportunities.
Listen to Stefan’s ‘near-perfect’ pitch on the Gimlet Media podcast, The Pitch.
Whether it’s your Kickstarter video or a meeting with one of the top VCs in your industry, you’ll need to tell a carefully crafted story about why you–not just your business or idea–are a good bet.