Choosing the right startup funding options is one of the most important decisions a founder can make. The wrong decision can significantly limit the potential growth of your company.
The first source of startup capital is often the founders themselves. They may use personal savings, grants, or a loan from friends and family who theoretically believe in their idea as much as they do. For the price of a small piece of equity, they can get their startup started with some much needed seed capital.
After the seed stage, some startups choose to seek institutional investment from a venture capital (VC) firm or angel investor group. At this point, it is likely that the startup has a Minimum Viable Product, some proof of concept or traction, and the team is in place. The goal is to find product-market fit and grow as fast as possible. The startup will likely spend money on marketing, product development, and a sales and operations team.
A VC will usually invest in the startup in exchange for a minority share of the business. If the startup is successful, it enters a growth phase and must scale rapidly while managing operational costs and maintaining a good culture. In some cases, the growth phase can last for several years and will include a series of funding rounds like Series A, B, and C. As the company scales, it will also need to focus on the exit strategy and manage a public IPO or acquisition.