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Funding A Startup – Terms Every Startup Entrepreneur Should Know

 

Let’s face the facts, start-up entrepreneurs face numerous challenges the moment they make the entrepreneurial jump and open their doors for business. One of the biggest challenges they will face is access to funding.

“Will I ask friends, family or fans to help out with funding?”

 

 

“Will I go to the bank and take out a loan?”

 

 

“Will an investor be interested in funding my venture or will I just have to win the lottery?”

 

 

These are just some of the questions they will be asking.  At O’Reilly Law, our goal is to help entrepreneurs succeed and to help them get funding ready. To this end, we have prepared this mini glossary of some of the most commonly used “start-up lingo” in the funding space.

 

Bootstrapped

 

Bootstrapping is building a company from the ground up with elbow grease, personal savings, cash coming in from the first sales and a bit of luck.  Bootstrapping means less money is borrowed, less interest is charged, and less equity is given away.

 

 

Funding Rounds

 

Different funding rounds refer to different stages in a startup’s life-cycle. The primary differences between funding rounds is the timing in the company’s life-cycle, the monetary size, and the deal structure, as we will indicate below.

 

 

Angel Investor

 

An angel investor is usually an affluent individual who provides capital for a business start-up, usually in exchange for an ownership stake. Angel investors give support to start-ups at the initial moments and when most investors are not prepared to back them, hence the flattering reference to ‘angel’. These investments are usually smaller types of investments – really just enough to get you going.

 

An angel can also be anyone from your parents, your neighbour through to your uncle who lives in Canada – anyone willing to invest that much-needed startup funding to get off the ground.

 

Seed Round

 

Seed rounds are among the first rounds of funding a startup company will raise and is generally while the company is in its infancy.  Round sizes range between R500,000.00 – R2,000,000.00 though larger seed rounds have become more common.

 

A seed round typically comes after an angel round and before a startups’ Series A round.

 

Series A, B & C

 

When the startup has moved beyond the development phase and ready to substantially expand, a new series commences in the lifespan of the business.

 

Series A relates to when a startup proceeds with an early round of financing after the seed round and seeks to secure investments with venture capitalists or existing investors to launch the businesses product into the market.

 

Series B is a funding round which focuses on scaling the business once the product has been established among customers which developed a serious appetite for it.

 

Series C is all subsequent funding rounds that are used to grow the company by making acquisitions, increasing its market share and establishing an international footprint and business presence offshore.

 

Round sizes differ from industry to industry but are generally much higher than seed rounds.

 

Conclusion

 

Knowing how to secure funding for your business involves more than just finding the right investor. It requires you to appreciate the stage your business is in, what type of investor your business needs, and what investors are looking for to make an investment decision.

 

 

With our astute academic and practical experience in both start-up and commercial law, our team at O’Reilly Law is well placed to advise you on how to become funding ready.

 

By Brent Petersen

 

Give us a call at 021 9488 273, for more info.

Info@oreillylaw.co.za

 


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