At its core investment comes down to a very simple concept: People need money to get their ideas moving. It’s simple and might take away some of the mystery, but it’s a hard fact of life. And this means that investing is an opportunity that arises due to this basic need. And this is why whether you are a solo investor or really on an advisory firm, you must understand the funding process behind a company. After all, knowing how funding works means you will understand the risks and reward that investing offers.
Every single business starts with an idea and an initial investment, and this first batch of money is what we call Seed Funding. Seed funding is the name given to the basic investment that a company uses to start its journey. Usually, the money comes from the company owner or close family who are relying on their savings or a loan. For investors, this is a risky step in the process. Nothing is stopping you from investing so early, but there’s no guarantee yet that the idea will work. As such investors only participate in seed funding when they are fully convinced in the idea being offered.
Series A Funding
Series A Funding is the name we give to the most common and profitable investment period in a company’s growth process. At this point, the company or business has an established user base and revenue, but it has yet to grow. This is the point where a company interested in further growth opens its business to investors who might be interested in buying stocks. The key advantage here is that there’s already a good grasp on how successful the business is, but it’s not large enough for costs to become prohibitive.
Series B and C Funding
Series B Funding can be seen as the second phase of Series A. A business looks for investors at this point to expand their market, they already are succeeding in their current range of operations but might wish to grow larger. This step in funding allows a company to grow beyond its market and rise to higher levels of demand. But overall it is very similar to series A.
Series C Funding is a step that takes place when a business is already successful and stable. This opens the door to new investment venues like Television, Artist Endorsements, and so on. On the flip side, this is usually not worth it for private investors, as the business is functionally on its final stage already.