Startup funding stages
There are several funding stages tech startups.
The earliest, known as seed funding or bootstrapping, is the initial chunk of cash that sets wheels in motion for a new business. It can come from savings, friends and family, even credit cards. That’s followed by angel investing, in which individuals with capital provide it directly to the startup, often for a percentage stake in the company.
Next is venture capital funding, involving pools of money contributed by multiple investors. These funds are managed by people who scout for companies that are typically further along in their lifecycle. A startup can seek multiple rounds of investment from venture funds as they grow. Venture funds also take an ownership stake, and in some cases will place one of their managers on the company’s board.
Venture funding can also be provided by corporations that want to encourage startups that may benefit their industry.
Other forms of funding include mezzanine funding or bridge loans — a middle ground between venture investments and selling public shares. They’re often used to ramp up operations as a commercial product is taking off, or to be a “bridge” between venture capital and selling an initial public offering, or IPO, on a stock market.
Finally, there’s the IPO, in which a business sells shares to the public. This has the potential to provide the largest amount of money, and allows a company to grow quickly. It can also be a payday, or “exit,” for the early stage investors in the company, who typically buy in at a lower valuation and are able to see greater returns when stock is sold.
All of these, of course, can be interrupted by a startup being acquired by another company, another form of exit in which all investors cash out.