Many of us in The Doers space consider an exit strategy – whether it’s a soft exit and your team takes over while you take a paycheck, or you aim to do an official exit in being acquired for $1M+, understanding the term is really important.
We also know that navigating the world of venture capital and private equity can be daunting, especially with the amount of terms and stages involved. This guide will break down some fundamental concepts and terms you need to understand as you embark on the journey of raising capital for your business. Read on for some basics of raising capital, the process, and other understandings that can help.
You may know that my goal is to sell Dial Zero Marketing for $2-4M after we are in business in 4-5 years. It’s POSSIBLE – please know that there are bigger opportunities out there than just $10k months 🙂
We recommend saving this post to revisit often.
Key Terms in Venture Capital and Private Equity
Venture Capital (VC): A form of private equity financing provided by investors to startups and small businesses with long-term growth potential. Venture capitalists invest in early-stage companies in exchange for equity or ownership stakes.
Private Equity (PE): A broader investment category that involves buying shares of private companies or public companies to delist them from stock exchanges. Private equity firms often invest in more mature companies compared to VCs.
Equity: Ownership interest in a company, represented by shares. When you give away equity, you’re essentially selling a portion of your company to investors.
Funding: The process of providing financial resources to support a business’s operations, growth, or development. This can come from various sources like VCs, PE firms, angel investors, or even crowdfunding.
Capital: Money or other assets that a business can use to fund its operations and growth. This can include cash, equipment, buildings, and more.
Stages of Funding
Pre-Seed Funding: The earliest stage of funding, typically involving family, friends, or angel investors. It’s used to develop an initial product and market research.
Seed Funding: This round is often the first official equity funding stage. Seed funding helps to fund the initial steps, such as product development and market entry. Investors might include angel investors, VCs, or seed funds.
Series A Funding: At this stage, the business has a proven concept and seeks capital to scale its operations. Series A funding focuses on optimizing the product and expanding the user base. This round typically involves venture capital firms.
Series B Funding: This round is about building the business on a larger scale. Companies have established a solid customer base and revenue streams. The focus is on expanding market reach and increasing market share.
Series C and Beyond: Series C funding and subsequent rounds are used for scaling further, entering new markets, or even acquiring other businesses. At this stage, companies are looking for significant capital to drive major growth and expansion.
Exit Strategies
Merger: A merger is when two companies combine to form a new entity. This can be a strategic move to increase market share, reduce competition, or achieve synergies.
Acquisition: An acquisition occurs when one company purchases another. This can be a complete buyout or a significant stake. Acquisitions can help companies grow quickly by adding new capabilities, products, or market segments.
Other Important Terms
Angel Investors: High-net-worth individuals who provide capital for startups, usually in exchange for convertible debt or ownership equity. They typically invest during the early stages.
Convertible Debt: A type of financing where investors lend money to a startup with the option to convert the debt into equity at a later stage, often during a subsequent funding round.
Valuation: The process of determining the present value of a company. This can influence how much equity investors receive in exchange for their investment.
Term Sheet: A non-binding agreement that outlines the basic terms and conditions under which an investment will be made. It’s the precursor to a detailed, binding contract.
Due Diligence: The investigative process investors undertake to assess the viability and potential risks of investing in a company. This includes reviewing financials, business models, and market potential.
Initial Public Offering (IPO): The process by which a private company offers its shares to the public for the first time. This is a common exit strategy for venture capitalists and private equity investors.
Are You Interested?
Understanding these basic of raising capital, and all the terms and stages is crucial for any entrepreneur looking to raise capital. Each stage of funding and each type of investor comes with its own set of expectations and requirements. By familiarizing yourself with these concepts, you’ll be better prepared to navigate the complex landscape of venture capital and private equity, ensuring you can secure the necessary resources to grow and scale your business.
If interested in an exit or a capital investment, we’re here to support in The Doers Club, and primarily in The Roundtable.
Our sister brand Cocky Ventures also can assist in helping you acquire a round of fundraising and work with you for equity instead of pay if you qualify.
We believe the world is a better place with women in power – and knowing money is power in today’s world, let’s get you paid, right? Let’s go!
