The Different Levels of Venture Funding w/ Bradley Miles
In this podcast, we sat down with Bradley Miles, Analyst of the Stripes Group to talk through the different levels of funding in the VC world. It’s critical to know what stage you’re in so you aren’t wasting your time reaching out to random VCs. We’ll talk about the difference between seed stage and late stage startups. Tech startup culture has its own dictionary when it comes to VC funding. If you’re looking for funding from a venture capitalist and you want to better understand the subtle differences between different funding types, read on.
There are three fundamental ways to obtain funding for your startup idea. Assuming you have a minimum viable product (MVP), a pitch deck, and a tight team working together, you can get your project of the ground in one of these three ways:
Crowdfunding is a direct-to-market method of funding startups through donations by potential end-users. Instead of asking a venture capitalist for funding in exchange for equity in your company, you’re asking end-users for funding in exchange for the product or service you plan on providing them.
This can be really helpful when your idea serves a direct and immediate consumer need. Many startups have raised six-figure sums through this method. However, it is not without its dangers.
For one, while crowd-funding platforms try to obligate you to deliver on your startup’s promise, there is no legal justification for you to keep your end of the deal. In terms of legislation, this is a grey area that has produced problems for ambitious startups that weren’t able to deliver on their plans as initially expressed.
2. Seed Funding
Seed funding, often available through business acceleration and business incubation programs, offers a relatively small amount of funding. This can be anywhere in the realm of $1,000 to $50,000. It can be thought of as a venture capitalist analogue to receiving funding from friends and family — not everyone has a rich uncle willing to invest in new ideas.
By searching for venture capitalists who specialize in early stage firm funding in this range, you can avoid making pitches to angel investors only looking to invest larger sums. CrunchBase is a useful tool for this, as is YCombinator and Techstars. You may also have similar local programs in your city or state.
3. Growth Funding
Growth funding, unlike seed funding or crowdfunding, is a method of funding that passes through the early stage investing round with the goal of achieving a specific market goal — an initial public offering, for instance.
Growth funding can produce sums of money in the range of $10 million. The funding typically takes place within a series of rounds — this is where you get terms such as series A funding, series B funding, series C funding, and so on. That first round is usually the most critical because it’s the first round after seed funding, rich uncle, or angel investment.
All of these funding options share a final goal — achieving profitability. In order to choose the right funding structure for your company, you need to accurately predict how you plan on breaching that important threshold. Endless funding — beyond the series C and series D round, for instance — may indicate that your company is having trouble producing profit.
Learn more about breaking into the venture capital market by attending local entrepreneur meet-ups and reading literature on the subject.
Mentioned in this podcast:
Seedfunding for students:
More info on funding ranges: