Is Your Company Too Small For Funding?
The funding options available to earlier stage companies.
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We often speak to companies that are earlier stage, and they ask us, are we too small for funding? The reality is that there are very few companies that are too small for funding. We’ve made a strong effort over the years to get to know a variety of different types of capital sources, so we can provide all of our clients with options when it comes to capital partners, regardless of the company’s size.
We’ve laid out below a number of different funding options for smaller companies based on a company’s size.
To learn about the funding options for larger companies, take a look at our free report: Funding Your Company: Finding the Right Partners.
Seed/Angel Stage (Pre-Revenue)
Investors in Seed/Angel Stage companies invest based on the belief that the management has the ability to create and grow the company to be something great. Seed/Angel investors expect a very large return on their investments as the company grows.
Family & Friends
Friends and Family are great sources of funding when other sources are less readily available. It is important to make sure that Friends and Family investors understand the risk of investing in Seed/Angel Stage companies.
Crowdfunding
Crowdfunding allows a Seed/Angel Stage company to raise capital from unaccredited investors. As we previously mentioned, Crowdfunding can cause problems later on, and when possible, non-equity crowdfunding such as product-based crowdfunding should be considered.
Venture Capital
There are all kinds of Venture Capital firms. Generally, an investment from a Venture Capital investor is more structured than investment from an Angel Investor. While most Venture Capital firms prefer to invest in companies with revenue, there are a large number of Venture Capital firms which will fund pre- revenue companies
Small Family Offices
Small Family Offices are similar to Angel Investors with regard to Seed/Angel Stage companies. Many Small Family Offices, however, prefer to invest in companies with a planned exit in the foreseeable future, whether it is an acquisition or public offering.
Angel Investors
Angel Investors invest in Seed/Angel Stage companies. Angel Investors generally look for very early companies that have the ability to provide them with an exponential return on their investment.
Early Stage ($0-$2M of Revenue)
Investors in Early Stage companies have a similar mindset to that of investors in Seed/Angel Stage companies, however, they expect to have more successes out of their portfolio companies. As a result of the company’s revenue, visibility on revenue, or a commercial viable product/service, the pool of potential funding sources increases.
Venture Capital
Early Stage companies are the focus of a large percentage of Venture Capital firms. From their perspective, the company has proven itself by creating a commercially viable product or service, or has generated revenue.
Small Family Offices
Small Family Offices are more likely to invest in Early Stage companies than in Seed/Angel Stage companies, due to lower perceived risk.
Small Investment Banks
If a business has the potential to scale and expand greatly, an Investment Bank may have an interest in raising funds for the company. Most Investment Banks prefer to work with later stage companies, however, there are many that prefer to work with emerging growth companies.
Expansion/Growth Stage – Late Stage ($3M-$9M of revenue)
The funding options for Expansion/Growth Stage companies and Late Stage companies are very similar, which is why we decided to group them together.
Venture Capital
Expansion/Growth Stage companies get a great amount of attention form Venture Capital investors, similar to Early Stage companies.
Small-Mid Family Offices
As a company grows, larger Family Offices will become interested in investing. Many family offices do not have the resources to invest small amounts in many companies. They prefer to invest larger amounts in fewer companies.
Small-Mid Tier Investment Banks
Mid Tier Investment Banks start to become interested as a company grows. Investment banks will also consider more transaction structures such as public offerings as a company becomes larger and more established.
Private Credit
Most Expansion / Growth or Late Stage companies will have some form of collateral that can be used to obtain private credit. Lender will consider anything from physical assets to recurring revenue.
Strategic Investors
At this stage, Strategic Investors may begin to become interested in a company. Strategic Investors look for complementary products/services, and will often invest more or at higher valuations than purely financial investors.
Crowdfunding
As with Early Stage companies, Expansion / Growth and Late Stage companies can raise capital through crowdfunding offerings.
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