Starting a brand-new company requires a good idea, a willingness to put in the effort, a bit of good fortune and, of course, money. The last requirement is often the hardest to come by. Raising money for a start-up can feel like begging at times – whether you are asking family and friends for contributions or talking to a bank officer in search of a loan.
Series funding is another way to get a start-up off the ground and develop it into a strong and legitimate business. This sort of funding can, over time, result in millions raised over many years of seeking investors. Many times start-ups that follow the series funding path eventually end up going public.
It is important for every start-up owner to fully understand series funding and how it works before launching their businesses. Series funding definitely has its advantages, but there are disadvantages as well. Business owners should have a clear vision of what they want their companies to eventually be in terms of ownership and control. That vision will dictate funding choices.
Series funding is a way of raising money for business by soliciting private investors. A good start up funding guide for new business owners will explain in greater detail the differences between series funding and seeking out bank loans, government grants, etc. In a nutshell however, funding a start-up through series funding requires being willing to give up some measure of control.
Investors willing to put money into a start-up don't do so out of the goodness of their own hearts. They want something in return. What do they generally ask for? An equity stake in the company. And more often than not, that equity stake includes a voice. This is where series funding gets tricky.
The investors who contribute the most to your start-up will want the most say in how things are run. And why not? It is their money at stake. They want your business to succeed so that they make a profit. They certainly do not want to lose on the deal. That is why so many investors demand to have at least some influence over how the new business runs in exchange for their investments.
As you can see, series funding comes with a trade-off. You give part ownership in your company to all those investors who come on board. If you're fine with this, series funding might be the way to go. But if you want to maintain total control over your business for as long as you own it, you might want to look at bank loans and other funding sources instead.
Series funding is normally divided into four different rounds. The amount of time it takes to transition. From one round to the next really depends on the circumstances of each individual start-up. Some move at a snail's pace while others rapidly progress through each series and eventually onto an IPO.
Here are the four different fundraising rounds:
· Seed Round – The seed round provides the cash necessary to get a business started. This money may not necessarily come from an angel investor or venture capitalist. Instead, it might come from family members, friends, and even a small crowdfunding campaign. Bootstrapping can substitute for seed funding if the business owner has the financial resources.
· Series A – The first round of funding that normally involves outside investors is Series A. This round is made possible through a consistent business record that has produced hard and fast data investors can look at. This round of funding is generally used to solidify the company's core service or product and begin the process of establishing a brand.
· Series B – The second round of funding is known as Series B. In this round, raised funds are intended to fuel business development. Companies are looking to expand their market reach and perhaps introduce secondary products or services. Investors are convinced that the business has long-term potential.
· Series C – This fourth and final round of typical series funding is intended to scale up the business. By the time the series comes around, the company is well-established and enjoys a significant market reach. Series C funding fuels the efforts to scale up by expanding market share, acquiring competitors, or a combination of both.
You now have a basic outline for series funding. If this is something you think would work for your business, take the opportunity to educate yourself about all of the finer details. Otherwise, consider other options for funding your start up.