MaRS Library Startup phase of company development: Funding, investors, risks and expectations
Startup phase of company development
By the startup phase of company development, you’ve proved that your idea is feasible and that you have a credible business model to deliver the product or service to an attractive target market. For the most part, the business has no or minimal revenue at this stage.
However, prospective customers and/or distribution partners have indicated their willingness to test the product and purchase it if it works as intended when ready for commercial shipment.
Funding sources for company development
- Angel investors are generally most interested in companies at this stage, and will invest on their own or in a syndicate (i.e., a group of investors). Angel-only investment rounds usually provide $250K to $1 million in financing.
- Not all venture capital (VC) groups invest in startups. A VC who is willing to invest before a real product or company is organized is called a seed investor. In a syndicate, seed funds will co-invest with angel investors. Seed rounds usually provide $500,000K to $2 million in financing.
At this point, you’ve lowered the venture’s risk by achieving concept-stage milestones and you have identified your specific financing needs ($500,000K to $2 million) for the next stage.
The funding received in the start-up phase will be used to:
- Develop a viable product from the technology
- Build products or services for early-customer prospects to test
- Develop a marketing and sales plan for the product launch
- Enable the company to achieve revenues of approximately $1 million (a key milestone for the next phase of fundraising)
Learn more about the other stages of company development:
- Startup phase of company development
- Growth or expansion stage of company development
- Later stage of company development
Thinking of raising money? We’ve created a free online course to help you get investment-ready. Check out Introduction to Investment Readiness and learn useful tips, tactics and strategies to prepare for your seed fundraising round.
Canada’s Venture Capital& Private Equity Association. Retrieved April 19, 2009, from www.cvca.ca.
National Venture Capital Association. Retrieved April 19, 2009, from www.nvca.org/def.html.
National Angel Organization. Retrieved April 19, 2009, from www.angelinvestor.ca.