Starting a business and bringing it successfully to maturity requires
lots of cash. Fortunately it does not all have to be provided by the
business owner. As a business grows, the sources of funding expand as
well. Here’s what every start-up should know about the traditional
rounds of funding
Seed Round
After an entrepreneur gets her big idea, the next step is to drum up
enough cash to put the product or service together – to actually bring
the idea to life. This stage of funding is often called the Seed Round,
with money coming from the entrepreneur’s own savings, a home equity
loan on his property, or from gracious and/or interested friends and
family. This is the money needed to get off the ground.
First Round or Series A
After the business takes off and demand proves sufficient but the
firm is not yet stable enough to turn a profit, business owners often
begin what is called their Series A round of funding, otherwise known as
first round or start-up financing. This is when outside i of angel
investors – start associating with the company, pouring badly-needed
cash into the business in exchange for equity shares.
Second Round or Series B
As the business expands more capital will be needed for hiring new
employees, marketing, and potential partnerships. At this point,
businesses can open up a Series B round of funding or second round to a
new crew of investors. They will have to pay more for their equity stake
than the initial investors did because the company is now worth more,
but they still get the profits of investing in a growing, successful
firm.
Series C, D, E…
Series B can be repeated as many times as necessary. With more and
more investors putting in their capital and enjoying the benefits of
being part of the company.
In all the funding stages, owners have to balance the cost of giving
up complete equity control of their brainchild with the profits of
growing a company sans having to fund it completely on their own.
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