Startup funding is the fuel that powers the rocketship of a new business, providing the capital to keep things going until revenue kicks in. However, it’s difficult to secure and manage funds while also meeting investor expectations. This challenge is exacerbated by the highly competitive startup financing landscape, in which startups are required to prove their value in order to attract investors.
Typically, the earliest stages of startup funding involve friends and family. This pre-seed funding can help a company develop a minimum viable product, find and test a market niche, and establish a strong team. Friends and family are usually willing to invest in startups, especially when they feel that the founders have passion and optimism. However, it’s important to be honest and realistic when discussing the risks of their investment. If you decide to take on friends and family funding, be sure to treat it like a professional transaction by putting everything in writing, establishing clear terms and conditions, and communicating openly and honestly.
Later-stage startup funding is often provided by angels and seed funds or venture capital firms (VCs). These are professionals that aggregate investment funding from various sources, investing in high-growth startups that they believe will make a substantial return on their investment. In exchange for their investment, VCs require solid proof that a company has scalable operations and is set up for success, such as consistent revenue and positive cash flow. Occasionally, government grants and subsidies may be available for select startup businesses that meet a specific criteria.