How Startup Funding Works

Let’s talk about đź’° and new business ventures. The most important thing for a new venture is that has a product or service that people really love. The second most important thing is that the team is able to get the money they need to be able to tell people about what they’re doing. They need to grow their audience. So, how did this usually work?

Funding Rounds
Usually, each time a business receives investment from outside people (not banks) they’re selling some kind of ownership stake in the company. For example, if your dad invests $25,000 to help you get started with the understanding he’ll get an ownership percentage later, that would be a funding “round.”

If a year later, a group of 3 angel investors got together and each put in $50,000 to buy some of the company, that’s a “funding round” too. And if you did really well and a venture capital fund invests $2 million later, that’s a “round” too.

Most people would call your dad’s investment a “Friends & Family” round, the angel investor funding a “Seed” or “Angel” round, and the venture capital investment (the third step) a “Series A” round.

Angel Investors
Angel investors are usually the first people to invest in a company after the founder herself or the founder’s friends & family gets things moving. Angel Investors usually put in relatively small amounts of money and often work actively to help the company make progress.

In the real world, you’ll often run into “Angel Groups” like the North Bay Angels who were involved with Eazl in the early days. These groups are clubs for angel investors who look at companies together and sometimes partner up to make investments in startups. The individuals in the groups usually like to ask the other angel investors what they think before they make an investment.

Venture Capital Funding
Once the company shows that people really interested in whatever it has created, the company might be able to get venture capital funding. The Series A round usually means the first time venture capitalists invest in a company, and usually they make an investment of $1-5 million.

If the company successfully grows using the Series A money, it can raise a larger amount of venture capital money which would be the Series B round and so fourth.

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