Getting a startup off the ground requires a lot of funding. While some startups can be launched using just a small amount of money, most need significant startup funds to develop a prototype and test their business model. Startups can raise this money from various sources, including venture capital, angel investors and crowdfunding. Each type of startup funding has its own set of pros and cons, but it all comes down to whether the company can secure a good return on investment for its shareholders.
Seed funding is typically the first outside money a startup attracts. This early stage financing usually involves a large sum of capital in exchange for an ownership stake in the startup. Seed investments are made by individuals who believe in the founders and are willing to take a risk on their ideas, or from entrepreneur accelerator programs like Y Combinator and Techstars.
Series A funding typically takes place when a startup has proven its concept and can show evidence of its potential, including early traction and customer growth. The aim of this stage is to scale the company and increase its revenue.
With this round of funding, the startup can start to invest in additional infrastructure and talent acquisition. Private equity firms and hedge funds may also provide this round of funding. Series C and later rounds are geared towards supporting expansion into new markets or developing new products to maintain market dominance.