How To Raise Startup Capital Through Funding Rounds

Are you wondering how to raise startup capital through funding rounds? How should your startup be planning?

Startups need capital. Especially those with big visions and hopes to grow fast and disrupt the world. So, how do you get funded?

What Is A Funding Round?

For new aspiring entrepreneurs on the outside may often still get the impression that you just come up with a great idea and pitch deck, and then you ‘get funded’ with millions of dollars and you are off to the races. Maybe you’ll even sell your company to Facebook or Google for billions next year. It can go like that. Most of the time it doesn’t.

In reality, startup capital is typically raised through a series of funding ‘rounds’. 

These are individual funding events that are designed to build on each other over time. Despite all of the work that goes into it, fundraising is not a one time deal. The longer you are in business before you sell or go public, the more funding rounds you are likely to raise.

How Often Do Startups Raise Money?

In recent years it has been quite common for startups to raise new funding rounds about every 12 months. 

When wondering how to raise startup capital through funding rounds note at each round startups have been aiming to raise enough ‘runway’ to last them 12 to 18 months. With the expectation, they will be able to raise new funding at that time.

Note that, this is really about gaining the capital to finance getting to the next major milestone of business. At which point they should be eligible to attract funding from the next rung up of investors.

This may include funds for hard costs, hiring more talent, marketing, and monthly operating expenses.

Keep in mind that it can easily take six months to close a round from start to finish. So, even if you are bullish on more money coming in, make sure you have a cushion to allow for starting a new campaign, negotiating, due diligence, and getting money in the bank. 

Before you even go out there seeking investors remember that storytelling plays a key role in fundraising and you will need capital to scale things up. This is being able to capture the essence of the business in 15 to 20 slides. For a winning deck, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.

Why Break Up Funding Into Multiple Rounds?

There are multiple reasons for this when wondering how to raise startup capital through funding rounds. 

The more capital you raise earlier, the more of your equity and control you will give up. Your company is also unlikely to warrant a high valuation which merits the hundreds of millions you may want and need to raise over time. 

As your startup grows you’ll also want to bring in different investors with different value offerings. The quality of these investors and connections will grow over time too. 

Common Types Of Startup Funding Rounds

The main types of funding rounds include:

• Pre-Seed
• Seed
• Series A
• Series B
• Series C

More recently, even more, rounds have become common. Series D and E rounds are more common. Freshworks even recently raised a Series H round.

Below is a video where I explain in detail every financing cycle.

Beware Of Common Wisdom & ‘The Norm’

Things are constantly changing in the economy, capital markets, and the startup ecosystem. What was the norm for the past three years may not be anymore. 

Be cautious of falling into this trap of just expecting the money to be available, the valuations to be up by leaps and bounds, and the underwriting to be the same. 

It could dramatically move in your favor. Or the other way. Don’t count on the same chain of rounds that your peers enjoyed last year. If there are significant swings, consider how that changes your business plan and funding plan, and who the best investors to bring on now are. Do you need to align with those who are experts at exits? Or those with more patient capital that is happily riding the long journey for the next 10 years? 

With this in mind, savvy startup founders are more frequently raising more capital than they need in the short term, and then keeping the bulk of that money in the bank, just in case.

The Keys To Successfully Raising Through Multiple Rounds

1) Always be fundraising

Once you start, you never stop. If it can take months to close a new funding round, you’ll be starting again virtually as soon as you close the last one. 

2) Hit your milestones

If you want current investors to give you more money, make introductions to other investors, and keep being brand ambassadors and easy to work with, keep hitting your milestones. 

Be sure you are outlining achievable milestones. You stay laser-focused on crossing them off, and you aren’t overpromising. Otherwise, it will come back to bite you.

3) Develop your investor network in advance

While it is possible to cold contact notable investors or get on TV shows and get funded, in reality, it usually takes months or longer to really build the trust and relationship you need to convert investors into cash. You should know who you need to be raising from in your round 12 months from now, and already be working on this. 

4) Get noticed 

Investors are always on the lookout for good companies to invest in. Do great at what you do, land the right customers, generate buzz around your brand, and keep growing fast. They’ll notice. Inbound interest is always a lot easier to close. Make sure you are also building a good reputation for how you are as a leader, operator, and how you work with your investors and board.

Hopefully, this gave you a good idea on how to address your strategy when wondering how to raise startup capital through funding rounds. If navigating funding rounds or the changing marketplace feels challenging find a good M&A advisor and fundraising consultant to guide you.