This video provides a comprehensive overview of startup funding, covering the entire roadmap from idea to IPO. Watch the full video — free, no account needed.
This video provides a comprehensive overview of startup funding, covering the entire roadmap from idea to IPO. It details various funding sources, common fundraising mistakes, and strategies for smart capital raising.
Hey guys, this is Aleandro Cromatis and today we're going to be talking about how to fund your startup. Now, here's the thing. Funding your startup is critical, especially if you're looking at building a hyperrowth type of company. There's nothing wrong if you want to build a lifestyle business, but if you want to build a billion dollar business, it's not about going alone because if you go alone, you can go faster, but if you go together, you can actually go much further. Today, we're going to be talking about how you get all these people involved to really help you in giving you the money, giving you the networks, and making it happen. And by the way, if you stay until the end, you'll be able to find what is the number one mistake that most founders do when it comes to actually getting out there and getting their company funded. So, first I want to talk about the startup funding cycle.
Here's the thing. Every company goes into different life cycles. So, you're going to have every 18 to 24 months, there's going to be different people, different skill sets, different milestones that your business actually is going to unlock or is going to be unlocking. And every life cycle goes in parallel with a financing cycle where you're not only grabbing the money, but also the networks of the people that are giving you the money in order to unlock what is going to be the next life cycle of the business. So, with that being said, you're going to start at an idea stage. Basically, you're just like thinking about it, what's possible. Uh then from there you're going to go into a seed, anything seed, micro seed, pre seed. It's going to be typically anywhere between 250,000 to 5 million. The median average is going to be around 2 million. But essentially, you're here looking at raising
money from people that can give you in addition to their networks, understanding about basically product market fit, validating your product, and then also helping you with operational expertise that they can bring to the table in order to help you in addressing some of the issues that you're dealing with. Essentially, at this point, you're raising money for the team. You're raising money for validating things. And again, it's all about the future that you're living into. That's ultimately what you're selling. Then you're going to go into the series A. The series A is going to happen 18 to 24 months later after the seed round. At this point, you have 1 million plus in revenue. You've been able to validate things and you're raising money for the very first time from institutional investors like venture capital firms. Because before that, let's say at a seed, preed micro seed, it's going
to be mostly individuals. But at a series A is going to be the first institutional round where venture capital firms are giving you the money. And again, you're going to be wanting to get from those venture capital things. Four things. Number one, access to talent. Number two, access to subsequent rounds of financings. Number three, access to distribution in the form of business development deals or partnerships. And number four, basically M&A either on the buy side to be able to achieve inorganic growth or on the sell side to be able to get the best possible outcome for all the stakeholders. At a series A funding cycle, you're ultimately raising anywhere between 5 to 15 million and the median average is about 10 million. 18 to 24 months later is the series B. At this series B level, what you've achieved is remarkable because now you're going from early stage company to grow stage
company. you're actually raising over $20 million, but raising ultimately for getting the network from investors that are in a complete outside location from where you're at in a different region where they're plugging in their networks, their resources so that they can replicate, help you in replicating what you've done in a completely different region. In this case, at a series B level, as I mentioned, you're going from early stage to grow stage. But after the series B, something amazing happens. and that is that every round after that is going to be more of the same in order to get you closer to the liquidity event that is going to happen in the form of an IPO, an acquisition in stock or in cash or a blend of both or a secondary where newer investors are buying out older investors. Now let's talk about the different types of funding sources. So the first one is bootstrapping which is
essentially your own customers are giving you the money. I find that bootstrapping was fantastic let's say 10 to 15 years ago but now being able to rely only on customer money especially during the early days is going to be very tough. Uh you're going to be in very low oxygen. So any type of mistake could be lethal. So personally I think that bootstrapping is great because you get to maintain equity ownership but it's also bad because any mistake can be catastrophic. So again that's for you to decide. The next source is friends and family. friends and family. Ultimately, people that love you. They're not going to be doing a lot of due diligence on you. They basically are people that trust you. And again, those are going to be people that are going to be giving you the money typically on seed rounds. Check sizes. They could be anywhere from, let's say, 10,000 all the way up to 100,000,
$200,000. But that's ultimately what you're looking at in terms of friends and family. Now, if you don't want your Thanksgiving dinners to get awkward, I would highly recommend against raising money from friends and family. The next one is banks and loans that they give you. Obviously, you have, let's say, the Small Business Administration, the SBA loans that have interesting terms for people that have, you know, that are actually getting out there and starting out things. But banks, you know, typically the terms that they will give you, they're not really beneficial. If you're, let's say, at a serious B+ already generating revenue, you can actually raise what is called venture debt, which is essentially raising money with which is going to be mainly debt. it needs to be repaid and that's going to be against the assets and the and the receivables of your business. So if you are more down
the path of being a growth stage company and you have solid revenues that you're presenting, perhaps raising debt could be a really good way to avoid dilution like going through an equity raise. But again, you got to be very careful because you need to put yourself in a position and a situation to be able to return that money back to to those banks. Otherwise, you will put yourself into some big trouble. The next one is crowdfunding which you have two blends. You have the donationbased crowdfunding like Kickstarters or Indiegogo of the world and then you have the equity based crowdfunding where you have like seed invest start engine and a bunch of all those others. Donationbased crowdfunding like Kickstarter is fantastic when you are pre-selling your product. You're ultimately raising money and in exchange for the people that are giving you the money you're giving something tangible
especially if you're consumers good type of company. I think is fantastic way to get the name out there, to get some press, uh to get distribution, to get early adopters of what you're doing. But if you're, let's say, like a high tech type of operation, what are you going to give? Beta testing and things like that, I don't think it will be that appealing. On the other end, equity crowdfunding is really interesting. It's really interesting because it's a good way to raise money. The only problem is that you're going to be raising very small checks and that could put you in a tough situation because those are going to be unsophisticated people. The problem too is that there is a lot of regulations that were introduced by the jobs act in 2012 and that is a lot of uh hurdles and regulatory restrictions that you're going to have to go through and reporting that you'll need to do that could be
a little pain in the neck. So again, equity crowdfunding the problem too is that it has some adverse selection, meaning that investors would see you as the last resource or route that you needed to take in order to raise money because perhaps more the traditional and sophisticated people did not want to give you the money. So again, there is a perception of adverse selection that you may need to navigate. The next one is angel investors. The angel investor term came from those that were financing some of the Broadway shows and that they called them like that because it was a very risky type of investment. And now angel investors that's what it's all about is people that are sophisticated and professional at investing in early stage companies. Typically those angel investors that are going to be investing at a seed stage or anything seed and and and before preede micro seed and also
series A's…