Capital raising for a startup company isn't a one-size-fits-all process; it comes in several different "flavors" or stages, each with its own set of players and expectations. Understanding this progression is key for any founder looking to fuel their company's growth.
In this insightful video, Phil Crowley, founder of Crowley Law LLC and a lawyer with extensive experience guiding startups, walks through the typical lifecycle of startup funding:
Bootstrap Financing: The journey often begins here, with founders using their own personal resources – savings, 401k funds, or even a second mortgage on their home – to get the initial idea off the ground.
Friends and Family Round: Once bootstrapping has taken the company as far as it can, founders often turn to their immediate network of friends and family for the first external capital infusion.
Angel Investors: After the friends and family stage, startups typically seek out angel investors. These are often wealthy individuals who have a keen interest in the specific type of technology or market the company is addressing and are willing to invest their personal capital.
Venture Capital (VC) & Institutional Investors: When a company has demonstrated significant traction, has "something to show" (like a viable product, early revenue, or strong market validation), it then graduates to engaging with venture capital firms and other institutional investors for larger funding rounds.
Crucially, Phil emphasizes that founders need a tailored strategy for approaching investors at each of these distinct stages. Furthermore, it's vital to understand the implications of each funding round on your company's ownership structure – specifically, what your capitalization table (cap table) will look like after each investment.
Navigating the world of startup finance requires foresight and strategic planning. This video provides a foundational understanding of what to expect.
If you're an entrepreneur embarking on the capital raising journey, this overview is for you.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
