By Fernando Berrocal
To open a brand new organization, you must first develop your business concept. To accomplish so, you'll need a Minimum Viable Product (MVP), which is a ready-to-market product with minimal functionality. Its purpose is to attract early adopters at the beginning of the product development process. Then, you'll require Startup Funding for your organization. In the United States, the cost of simply registering a business range from $800 to $1,000.
So, where can you get funding for your startup? It's not a simple task to get startup capital for your business, particularly if it doesn't have a product or service to provide as of now. If people don't trust your idea, you probably won't be able to get funds for your business. So, how do you approach things? One main way is to approach your relatives and tell them about your plan, and even if this isn't the best one but they trust in you, it can become a big help. Several well-known business figures borrowed money from their relatives when they were first starting.
There are many forms of small business funding. If a startup survives, it will need to raise money in numerous rounds. Startups can get seed funding; this investment is the first round of funding for a new enterprise. It may be between $50,000 and $500,000, depending on your presentation and the amount of money needed. The issue? This is one of the riskiest investments available. If it succeeds, your investors will be able to even quadruple their investment in years. If it fails, however, they will lose all of their money in a matter of months. In the event that you find success for at least two years, you'll be eligible for Series A financing.
- Series A
You have run out of funds and have offered your father a 10% stake in the business in exchange for an initial investment. Now, you must obtain additional funds in efforts to progress one level. To raise more money, interact with venture capital (VC) firms and angel investors. This sort of investment is substantially larger than you anticipated. It might cost anywhere from a few thousand to millions of dollars. However, you will have to offer the new investors a piece of your firm. Let's imagine you contributed 10% of your investment. However, now that you've received extra capital through the series round; you'll need to dilute the shares, this is how it can be:
The initial value of the firm is $300,000 and your father's part (seed financing) is $30,000 (10%). A VC firm will provide you with one million dollars for a Series A investment. The firm's stock will now look like:
$1 million + $300,000 + $1.3 million + post-funding value = $ 3 million.
Next, you'll negotiate with a VC firm for a 30% stake in your business in exchange for a million dollars in investment. As a result, the firm will now issue shares, reducing the value of the earlier shares.
Assume your business has 100,000 shares with a market value of $3 per share. The firm will now issue more shares to provide new owners with 30%. The initial 100,000 shares will be worth 70% of the company's entire value. Then, you'll have to issue 42,857 additional shares worth 30% of the firm's value. A total of 142,857 shares will be issued. It also signifies that the value of the firm's stock will rise to $21. As a result, your father´s stock has grown in value. His share value is now $210,000, rather than the $30,000 he handed you two years earlier.
- Series B
Similarly, after 4 to 5 years of operating, your firm can seek Series B capital if deemed necessary. Businesses seldom seek this form of capital, since they typically become profitable after 5 years or so. This startup capital is frequently in the tens of millions of dollars, with the basic fundraising round starting at roughly ten million.
Now that you know what startup funding is and how it helps investors allocate stock, let's take a deeper look at how to find it.
Alt text for the image above: Obtain Fundings
How to Raise Capital for a Startup
Crowdfunding is one main approach to acquiring startup investment. Since the audience won't ask you to return their funds, this is one of the quickest and safest ways to obtain money. They primarily care about the goods or services you promised to provide. Check out Kickstarter and Patreon for examples of crowdfunding platforms that allow the public to purchase things to help support a firm. Using the crowdfunding strategy, several legitimate businesses have found success.
- Angel Investors
The angel investors are another key source of investment. These are private investors that invest in the early stages of a firm's development. Since the danger of investing in a new firm is higher than typical, they are referred to as "angels." If you have the right contacts, finding one is rather simple. You may locate them by searching on social networking platforms and then sending them your business pitch, or by visiting startup events.
- Venture Capital (VC) Firms
This is a Limited Partnership or Limited Liability Corporation (LLC) that invests in startups that have the potential to provide a positive return on investment for its investors. Most are actively seeking businesses that wish to raise money in exchange for equity. You may also find them by visiting their websites or attending startup events. Attending startup pitching events is the best approach to locating VC investors.
- Startup Incubators
Startup incubators are a collaborative program for startups to be coached, have office space, and gain assistance in meeting angel investors. They typically don't need stock unless they are also offering finance to entrepreneurs. Most of the time, they just incubate and mature the firms for them to apply to accelerator programs. Incubation can last from three months to a year. However, startup incubators choose to support businesses in exchange for a stake in the firm. Now ask yourself this question: What is the best way for a startup accelerator to fund a business? Several accelerators will provide cash to businesses in exchange for stock in the business.
- Startup Accelerators
Consider a startup accelerator as the next step in your startup founder training. Consider if you need it before looking for one. Perhaps your business is gaining momentum on its own, and you don't need to participate in an accelerator. A minimum viable product (MVP) is generally required by accelerators. Likewise, check to see whether your product and/or service is already available. If it isn't on the market. In reality, unlike incubators, accelerators are limited in duration and overly dependent on mentorship.
How Masslight Can Help
MassLight’s mission is to help your startup succeed. Our equity-based programs are designed to help startups launch and scale, culminating with an introduction to investors and acquirers. We offer our services in the following three stages:
- Idea Stage, at 3% equity. You bring an idea and have a background that involves previous success with startups.
- Discovery Stage, at 6% equity. You have a pitch deck, founders who can sell the product, financial models, and indicators of traction.
- Build Stage, at 20% equity. You have detailed mockups and pre-sales commitments. Now, you're ready to deliver the product to initial customers.
Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.