5min
Module 1: The Funding Landscape
Module 2: The Pre-Seed and Seed Stage
Module 3: The Series A Stage
Module 4: Later Stage Funding (Series B and Beyond)
Module 5: The Fundraising Process
3/16 Lessons
Content
Before you can accept an investment, you need to understand the fundamental difference between "equity" and "debt". These are two completely different ways to finance a company, each with its own set of risks and rewards.
1. Equity Funding: Selling a Piece of the Pie
Equity funding is when you sell a portion of your company's ownership in exchange for capital. Investors, like angels and VCs, become part-owners of your business.
How it Works:
In exchange for their money, investors receive shares of your company's stock. Their return on investment comes from the company's future growth and an eventual "exit," such as an acquisition or an IPO, when the value of their shares increases significantly.
Pros:
You do not have to pay back the money. Your investors are now partners with a vested interest in your success, and they can provide strategic guidance and valuable connections.
Cons:
You give up a portion of your ownership and control. As you raise more money, you will experience "dilution", where your percentage of ownership decreases.
2. Debt Funding: Taking a Loan
Debt funding is when you borrow money that you are legally obligated to pay back, usually with interest, over a set period. This is a loan, not an investment in ownership.
How it Works:
A lender, such as a bank or a venture debt fund, provides capital in the form of a loan. The agreement will have specific repayment terms and an interest rate.
Pros:
You do not give up any ownership or control of your company. Once the loan is paid off, the relationship with the lender is over, and your ownership remains at 100%.
Cons:
You have a legal obligation to repay the debt, regardless of your company's performance. If your startup fails, you may still be personally liable for the loan. This can be a significant risk.
3. Key Differences: Equity Funding vs Debt Funding
Ownership
Repayment
Risk
Example
Equity Funding
You give up a percentage of your company.
No repayment is required.
The investor loses their money if the company fails. You lose ownership.
A venture capitalist invests $1M for 10% of your company.
Debt Funding
You retain 100% of your company.
You must repay the loan with interest.
You are legally obligated to repay the loan, even if the company fails.
A bank gives you a $100K loan to be paid back over 5 years.
You've now completed Module 1! You have a solid understanding of the funding funnel, the key players, and the financial instruments used in fundraising. With this foundation, we're ready to dive into the specific stages of funding, starting with the earliest. In our next module, we'll focus on Pre-Seed and Seed funding, which is where most founders begin their journey.