Each geographical region has its own opportunities for startups to secure funding at various stages of development. This blog post will explore opportunities to secure funding in the U.S. The funding landscape is a dynamic environment, characterised by traditional sources and some surprising patches of non-traditional opportunities to secure funding. The standard pathways include pre-seed and seed funding to validate, establish and execute a business idea. Beyond this, provided your startup is successful, a series of funding rounds can be executed to invest in the strategic objectives of your organisation. No matter the stage of your startup, it’s important to know what options are available at every stage so that you can appropriately plan your roadmap to success.
Traditional Funding Schemes
Pre-seed funding is generally acquired at the beginning of your startup journey. It is typically used to validate your idea, develop a business model, survey your potential customers, and collaborate with stakeholders. Pre-seed funding is generally a small injection of funds from yourself, friends, family, and other non-institutional investors (like other founders).
Seed Funding (From $10,000 to $2M)
Seed funding is used to execute the planning stage of your business venture, which is conducted during the pre-seed stage. It is generally the first official equity funding phase and can be sourced from government grants, angel investors, accelerators, incubators, or even some venture capital (VC) firms. They are mostly dilutive sources of funding and are highly competitive.
Series A (from $2M to $15M)
When a startup is established and can demonstrate strategy for generating revenue, Series A funding is sought to execute the development of a customer base, diversify offerings and scale operations. Series A funding is generally sourced from VC firms.
More recently, VC firms are becoming more risk averse and stringent in their requirements for startups seeking funding. They are increasingly expecting more highly developed startups and often require taking a larger stake in your company to offset risk.
At the Series B stage of funding, the startup is generally expected to be generating revenue and has a proven track record. However, it is important to note that this is not always the case with technology development startups. This funding is sourced to further expand the business into new markets and further scale. Generally, Series B is like Series A but allows the opportunity for later-stage investors.
By the time a startup is pursuing Series C funding, they are well-established as a company and seeks further growth through new product developments, markets, or acquisitions. Investing at this stage is less risky for investors. Generally, groups such as hedge funds, private equity firms, and investment banks play in this area.
Companies may also venture towards further rounds of funding (Series D and E). However, this often occurs if they have failed to raise enough funding to date or they are heading towards an Initial Public Offering (IPO) where a company initially sells shares to the public.
There are a number of advanced nuclear companies who are on the pathway of funding rounds which move from government grants, VC funding and then Series E funding. There is no prescribed pathway, however, having a strategy to target funding to sources will increase your likelihood of obtaining the funding you require.
Helion Energy, a fusion energy company based in Washington, is an example of a startup going through funding rounds from $5M in government grants, $72M in venture capital funding and recently a Series E funding round of $500M.
Other Funding Schemes
Small Business Administration (SBA) Loans
SBA loans amounts vary from $500K to $5.5M and form a part of the pre-seed funding, which is non-dilutive and can be used to start business operations. They are first and foremost a loan and, therefore, have strict qualification criteria (sometimes requiring a down payment) and have repayment conditions. This often makes this funding scheme inaccessible for early-stage startups. Revenue-generating startups, however, can apply for SBA loans to further expand or scale their business.
Small Business Innovation Research (SBIR) Funding
The SBIR funding program awards funding for two stages in a three-phase program. Phase I provides funding of up to $150,000 and Phase II can provide funding up to $1M. They are accessed through engaging federal agencies such as the Department of Energy to access their R&D funding. To be awarded these funds, startups will generally have to align with the critical priorities of the agency, so it is important to check which agency is relevant for your technology.
Equity crowdfunding has been gaining traction in the past few years and has democratised commercialisation and investment into innovation. According to Forbes, by 2025, the crowdfunding market is predicted to grow by nearly $200 billion, with a compound annual growth rate of over 15%. Crowdfunding can be dilutive or rewards-based and provides startups with the opportunity to showcase their product, mission, and vision in a dynamic environment. The U.S. has stepped up regulations and increased the amount a startup can generate through crowdfunding platforms.
The funding landscape is continually shifting. There are varying sources and streams available depending on the stage the startup is at. Investing time and resources into validating a business model and customer development de-risks investment into a startup and, therefore, increases the chances of generating investment.
If you’re a startup looking for assistance in validating your business model and identifying which funding scheme is best for your business, reach out to Helixos today for expert advice by visiting https://www.helixos.co/contact