Startup funding is one of the first — and often, most important — financial decisions most entrepreneurs make. The type of funding you choose can shape how your business is structured and run, so it’s essential to think through the options carefully before choosing a path.
Getting the right kind of startup funding depends on several factors, including how much you need and how quickly. Founders can get startup capital through loans from traditional banks and online lenders, contributions from friends and family or a combination of sources. Private investors or venture capitalists may also be interested in providing seed or Series A-level investments.
Pre-seed funding: This is typically the first official round of investment a startup raises, with early investors taking a risk in exchange for equity in the company. This can come from angel investors, accelerators or incubator programs like Y Combinator. It may also be offered through crowdfunding platforms or grants from federal and state programs.
Seed funding: This enables startups to test out their ideas and products, and build enough proof of concept to attract more reputable investors. Typically, investors focus on team quality, a strong vision and market potential.
Series A, B and C: Investors want to see that the company has optimized its product-market fit, is growing predictably and has a scalable financial model. They also expect a plan for an exit strategy, such as an acquisition or IPO.
Aside from the formal sources of startup funding discussed above, many startups find it helpful to seek out equity-based financing from skilled contributors who believe in their mission. For example, designers, developers or advisors who can help with a specific project can be offered shares in the company in exchange for their time. Make sure to set clear expectations, use a vesting schedule and track equity grants professionally using tools like Carta or Pulley.