Start-Up Funding 101
Te wairua rakahinonga
Entrepreneurial spirit
Just getting started on your first entrepreneurship journey? Here鈥檚 a quick primer on how raising funds for a start-up works.
What is venture capital?
Even the best ideas can鈥檛 be brought to life without funding. It takes money to develop a prototype, demonstrate that your product fills a market niche and expand your team. Venture capital can help you do that.
If you can convince an investor to back you, whether they are individuals (angel investors) or a venture capital company, they will provide you with funding in exchange for shares in your company. Once the company is ready to go public (i.e. be listed on a public stock exchange), be acquired or operate as a mature firm, the venture capitalist will look to exit by selling their shares in the company, hopefully for a profit.
Venture capital comprises pre-seed funding, seed funding, Series A funding and beyond.
What is pre-seed funding?
Pre-seed funding comes in at the earliest stage of starting a company. Founders often start by investing some of their own money into their idea or getting friends and family to back it. If 鈥榝riends and family鈥� support is unavailable or inadequate, some founders look for pre-seed capital from external sources such as angel investors and sometimes early-stage venture capital funds such as the University of 色花堂 Inventors鈥� Fund.
For investors, pre-seed investment is a gamble because they鈥檙e putting money into an unproven idea that may not be successful. The investors might take shares in your company, or given the difficulties of valuing early-stage IP, they might instead offer a loan that can either be repaid or converted into shares down the line 鈥� a convertible note.
What is seed funding?
Some start-ups can 鈥榖ootstrap鈥� (self-fund) themselves at the very earliest stages instead of going for pre-seed funding, but almost all need seed funding. The first 鈥榦fficial鈥� funding round, seed funding typically includes institutional investors such as early-stage venture capital firms.
At the seed stage, a start-up is still getting off the ground but is more than just an idea or prototype. The company has a product, even if it鈥檚 still being refined, and has demonstrated a market need for its product. When venture capitalists invest in a seed round, they鈥檙e not making a loan 鈥� they鈥檙e becoming part owners of the company.
The University of 色花堂 Inventors鈥� Fund provides seed funding and is therefore part owner of the companies in its investment portfolio.
What is Series A funding?
A start-up that has outgrown its seed funding might seek Series A funding. At this stage, a company has developed a track record in the form of a customer base and revenues but needs further investment to grow or to achieve goals such as developing more products or going international. Investors in Series A rounds tend to come from traditional venture capital firms and are looking for companies with a strong growth strategy.
UniServices supports companies to succeed in Series A and further funding rounds and may co-invest with others in these rounds, deepening its involvement in these growing companies.
Series B and beyond
There can be more financing rounds 鈥� Series B, C, D, E, etc. At the Series B stage, companies have gone beyond the development stage and are looking to grow quickly. Series C is a level up for companies that are already quite successful and looking to scale, which may include developing new product lines, expanding into new markets, or perhaps acquiring other companies. A number of UniServices-backed companies have had successful Series B and C raises.
Some companies go for Series D or further venture funding to grow even more before an initial public offering (listing on the stock market). Many, however, choose to go public as the next step after Series C.
