Business ideas can start from the humblest circumstances: a makeshift office in the garage or a workspace in the basement. The ideas that are born in these spaces can be the foundation for incredible growth opportunities in the future when the necessary funding comes through.
While there are huge start-up successes, like Uber, Facebook, and Spotify, many business ventures fail. So, it is easy to see why investors are selective about where they choose to put their money. If you’ve received investment funds, then it’s safe to say you have a business opportunity that looks promising.
Common Funding Options for Start-Ups
There are various types of funding that you might receive. Commonly, most money is sourced from angel investors and venture capitalists:
- Angel investors: these are typically your first opportunity for external (non-friends and family) capital. They usually invest anywhere from $50,000 to $2million or more in return for common equity, convertible notes or SAFEs. People often refer to angel investor rounds as “Seed” rounds that can include anywhere from 2 to 15 or more individual investors. Some angels invest from an angel network, which can make both the raising of capital and management of investor relations easier.
- Venture capitalists: these investors are your source of growth funding. Depending on the size of the VC fund invested capital, and the last stage of company financing, may be $500k to $5million or much more. VCs typically require preferred stock structures to protect against downside risk and yet ensure fair distribution of returns at exit. Some VCs invest in Seed-stage rounds but they are also the main sources of capital in Series A, B, C… rounds.
Funding is Available… What Now?
As a start-up business owner, you might feel like you are “in over your head” when the funding comes through. Even though you haven’t been through this process before, you can lean on the expertise of experts in the industry. Here are a few steps that should be on your priority list now that you have funds to pay for these efforts:
- Planning for the Future: Just because the money came in, doesn’t mean that you have a bottomless bank account. Work with a CFO or financial advisor to choose the best use of the funds and manage your cash runway. Question assumptions about the market and your product, and always document the decisions and spending.
- Market Research: The most common use of seed money is to pay for the initial market research. It is important that you understand your target demographic and the products they are interested in buying. Address the needs of your customers, and you will have no problem selling your product or services.
- Product Development: Early product development begins so that inventory is ready for customers. Be cautious about inventory management. You need to have a big enough inventory to support demand, without going overboard by burying too much money into inventory in the beginning.
- Legal aid: With most things set and ready to launch, you will require some sort of legal expertise and advice to ensure there are no errors. Most times, your financial advisor or mentor will help you partner with an appropriate law firm.
- Scaling and Growing: Now that the industry has been tested, it’s time to scale the efforts. Usually, this step involves bringing on new team members and expanding product offerings.
The post-funding period is usually very critical for startups to pave the future way of growth. Talk to a financial advisor or a CFO if you are unsure about the best ways to use your startup funds.