Venture capital and other financing options for your business
When is the right time to consider VC or Private Equity for your company? Initially, all entrepreneurs must first see if they have exhausted all other options first. Typically, a company would have little capital when considering private investors. However, there are multiple sources of social capital, including friends and family, business angels, venture capitalists, corporate/strategic investors, private equity firms, or the entrepreneur’s own capital.
For those looking for $500k+ capital, look to VC. For smaller investments, entrepreneurs should look into Business Angel or Debt Capital. So it helps to understand the different types of funding stages, so see below.
Pre-seed financing is financing that is needed before the business is physically built. Usually, this funding goes towards putting together a good business plan that can impress potential investors.
Start-up financing is the financing that is required to start building the business. Some businesses may be able to skip this funding phase, if applicable, but seed capital is typically the capital that is required to obtain the basics for a start-up. Typically, in the early stage, a business is not yet ready to open its doors and this financing is typically used to rent office space, real estate, equipment needed to produce the business’s product or service.
Seed funding is less commonly invested by VCs and is not necessarily a large amount of funding. Initial funding can range from $100,000 to $500,000. It rarely exceeds a million dollars. The seed capital can also be obtained from a Business Angel, Friends and Family or from the Entrepreneur’s own funds. Only 15-25% of venture capitalists invest in seed funding.
Seed-stage financing is typically where venture capital is sought. Typically, a business is ready to go but requires additional capital for salaries.
Later stage financing is also known as expansion/growth stage financing and is for companies that are doing well and looking to expand.
There are numerous ways entrepreneurs get seed capital to get started. These conventional ways include obtaining debt capital from a commercial lender, a commercial bank, or an angel investor who is willing to put seed capital into the business. Other more resourceful entrepreneurs raise start-up capital by raising debt capital, sweat capital, and financing from friends and family. Venture capital is typically raised with early-stage financing, meaning, as noted above, series A or series B financing. In most cases, venture capitalists will not invest less than $1 million in a company.
Understand this and you will be off to a good start and taken seriously.