Getting your startup off the ground and on track for growth takes more than just hard work. It requires startup funding to cover operational costs, pay your team and keep the business moving forward toward a positive cash flow. The right type and amount of startup capital is crucial to your startup’s success, but the best option varies widely depending on the size of your business and your personal financial situation.
Startups that need to raise a substantial amount of money, or that are at a more advanced stage, usually turn to venture capital (VC) firms. VCs invest in startups for a share of their company’s equity, which gives them a stake in the company and the opportunity to make money from the company’s future profits.
For most startups, the first source of startup funding is a loan from family members or friends. This can be a risky form of startup capital, however. It’s important that you set clear terms with your loved ones before accepting this form of startup funding, and that you document everything in writing.
After receiving initial angel or seed-stage funding, many startups move on to Series A, A, B, C and later rounds of startup financing. These larger rounds put the pressure on a company to grow quickly and reach an exit strategy such as an acquisition or IPO. This can create a culture that favors short-term gains over long-term sustainability, especially as companies scale globally.