As a startup, at least one of your goals should be to create a large, valuable company (a valuation of eight to nine figures) in a highly competitive marketplace. This can’t be achieved without fast growth, because there will always be another company that’s nipping at your heels, ready to pass you (or, in a market with strong network effects, looking to make you irrelevant) at the first moment you falter.
Fast growth will lead you to onboard highly experienced and capable people, and those people can then lead to even faster growth. The ideal startup forms a virtuous cycle of sorts that starts by growing fast and ends with serving lots of customers and being worth lots of money.
While it won’t always be this simple, you can follow these typical startup funding paths:
- Put in your own money (at the very least, in the form of opportunity cost) and build an initial product or gain some initial early selling on just your idea. Sometimes, founders will put together a “friends and family†round at this stage, pooling resources from people with whom they have close relationships and a high amount of trust. You can also participate in an accelerator or new business competition to help get this initial traction.
- Go to high-net-worth individuals (angel investors) who will back your idea in exchange for shares (a percentage of ownership) in your new company. This gets you a bit further, allowing you to put together a more complete team, gain more customers, and improve your product.
In my previous post, “Should Your Startup Actually Be a Small Business?†I addressed what may be the most important differentiator between a startup and a small business: growth. While I hope it was useful, especially from a theoretical standpoint, I want this one to go directly where the rubber meets the road: How does a startup fund their business?