The initial funding that gets the most news involves raising money through external investments. In such cases, investors exchange capital for shares or partial ownership of the company. Initial funding or seed capital is the money needed to launch a new company. It can come from a variety of sources and can be used for any purpose that helps the startup move from an idea to a real business.
In the case of many grants, in order to receive funding, the objectives and values of your startup must match those of the organization from which you are applying for the grant. A business plan can help you build trust among investors, lenders, and family members, who can help you finance your startup. As each round is accompanied by a new valuation for the startup, previous investors often choose to reinvest to ensure that their share of the pie remains significant. Serial funding occurs when a founder gets larger and larger rounds of capital to keep his startup going.
Some entrepreneurs choose to avoid this type of initial funding due to potential personal complications. The objective of a venture capital investment is to obtain a very high return for the venture capital firm, usually in the form of an acquisition of the start-up company or an initial public offering.
Understanding the distinction between these rounds of raising capital will help you decipher the news about startups and assess business prospects.
Often, startups have big ideas that generate a significant amount of enthusiastic users, but the company doesn't know how to monetize the business. There's a slight difference between the two, which you should know if you're considering this type of funding for startups.Angel investors are usually people with high net worth who seek to invest relatively small amounts of money in new companies, usually ranging from a few thousand dollars to up to one million dollars. Startups also use the revenues of the first companies to continue running the company, instead of seeking external funding. In addition, unlike accepting investments from private investors or venture capital, applying for a small business loan means retaining full ownership of the startup. As you can see, there are tons of potential sources of capital for startups and there's a lot of money on the table.
Understanding the types of funding for startups can help you understand what's available and how it aligns with your company's objectives, so let's talk about that next.
