When I started my business in 2014 I knew that as a service based business it was important for me to have a tangible product that I can offer my target client. I sort out to develop the first version of the Plan, Pray, Prosper PlannerTM. After all the work I put into the product I knew that I could take the brand further. With the right mentors around me, I was fortunate enough to get the funding I needed to develop my product.
Working with early stage, side hustling, female founders on various areas of their business what surprised me the most is how little they knew about funding options and of those that knew, how many don’t consider their businesses as funding worthy. Primarily because data shows women of color founders get less than 1 percent of all Venture Capital funding every year. With no access to capital many small businesses don’t grow to 6 or 7 figures.
With women-owned businesses growing 21% from 2014 to 2019 and firms owned by women of color grew at double that rate (43%), it’s surprising that the funding stats are not rapidly meeting the demand of our community. To bridge the gap in funding several funding sources for women of color have emerged. But before we get to that I will be sharing with you in a series of articles the funding stages to better position you for raising capital.
Here are the stages I will be reviewing in this series:
- Pre-Seed Funding: Bootstrapping, friends and family stage
- Seed Funding: Product development stage
- Series A Funding: First round of Venture Capital
- Series B Funding: Second round of Venture Capital
- Series C Funding: Third round of Venture Capital
- IPO: Stock market launch
In this article I will highlight the Pre-Seed and Seed stage:
The stage is commonly known as bootstrapping. You must use your own existing resources such as your savings, credit cards, friends and family and as the funding industry expands now crowdfunding and micro venture capitalist have been a source of pre-seed funding. Unless you are backed by a micro venture capitalist usually no equity is exchanged for funding.
Some characteristics of pre-seed funding are:
- Startup valuation is between $10K-$100k
- During this stage you are exploring the feasibility of your product or service, developing a marketing and sales plan for the launch or sometimes relaunch, and market testing happens here
- Approximate funding amount goes up to $50K
A pre-seed funding round takes place early on in the product development stage. Founders raise pre-seed funding to develop the first-version of their products and to bring them to a level where the next round of money can be raised.
By the end of your pre-seed round, your startup should have in place:
- A functioning product that demonstrates your ability to execute a completed product
- A credible team assembled, with the proven ability to work together, investors like to see teams
- Documented experiences with customers in your market that provide investors with not only data points on the potential size of your market but also indicators of customer demand
- A growth strategy including key distribution channels for products
- Some traction after an alpha or beta launch with product feedback from customer and early adopters
Entrepreneurs should also work out any necessary legal issues like partnership agreements, copyrights, or trademarks. During this stage, many founders also seek guidance from founders who have been there and have gone through a similar experience as them.
When I developed the Plan, Pray, ProsperTM product line of spiritual planner and journals, I knew I couldn’t do it without seeking guidance. As a SoloCEO the thought of asking friends and family was the scariest thing for me but the number one advice I received from other’s that have experienced this was to not be afraid of the no. I succeeded in raising over $10K for my product and invested another $10K of my own.
This is the first official equity funding stage. It typically represents the first official money that a business raises; some companies never extend beyond seed funding into the next rounds.
Some characteristics of seed funding are:
- Startup valuation can be between $3 million and $6 million
- During the stage a startup receives help in determining its final product and demographic
- Approximate funding amount can go from $50k to $3 million
By the end of the round, you startup will:
- Perform market research and product development
- Gain assistance in determining what its final products
- Know your target demographic
- Employ a founding team to complete these tasks
The analogy of planting a seed so that a blooming tree grows is often annotated for this stage of funding. Ideally, this round of funding is the seed that enables many startups to accelerate their growth. With a successful business strategy, the tenacity and dedication of a female founder, your startup will eventually grow into a blooming tree.
Next week we will go over Series A, B, and C stage funding.
Marsha Guerrier is a bestselling author, speaker, trainer, business analyst, business coach, and CEO of HerSuiteSpot®, a MWBE certified small business consulting and coaching agency that provides online and in-person support to early stage female founders looking to accelerate their business.