4 Stages Of Capital Funding And What They Mean For You

Money may look and feel the same, but the type of funds your small business needs throughout its life is actually quite different. To help secure the right amounts of funding with the least stress at different times in a business's life, keep in mind these four stages of capital raising.

Seeding an Idea. The first stage of any business is when it needs to go from an idea on paper to a functional business. This is often the hardest stage to fund because the business has no track record. This is where venture capital comes into play. In the earliest stages of proving your product or service will work, you're seeking "seed money" or venture capital. This is a more limited amount of money, but it can be the most difficult to secure. The key at this point is to be able to show that your idea has a strong likelihood of working. 

Getting Started. Once you pass the "proof of concept" stage and your business is going forward, you generally need funds to get it up and running. This is often called "Series A funding", and entrepreneurs at this stage are seeking the money needed to put items into production, to market them, and to start earning income. You'll need more money, but your product should have passed the first inspection at this point. So your key focus is now to demonstrate that you can actually turn it into a viable business.

Scaling Up. The third stage of capital requirements is generally to take a small business with limited reach and scale it up for a modern world. Your business is a somewhat proven commodity, and you likely have a good track record with a few key investors. These facets make so-called "Series B funding" a little easier than the initial efforts. The primary selling point for investors is that you have a clear vision of where to go next as well as a team and processes that can handle that growth. 

Expanding Out. "Series C funding" is all about continuing to grow outward. This is where you start selling investors — both new and established — on new markets, new products, and new techniques. You've reached a few milestones and have weathered the initial hiccups of entrepreneurship. Now, you're ready to take some new chances and are looking for investors who like what they've seen already.

By better targeting your efforts to the right type of capital funding at the right time, you can increase your chances of securing the money your business needs at any stage. And then you can get back to what got you into business for in the first place, leaving money worries behind.