One of the most popular questions we get asked is “How Much Money Do You Need To Start A Business?”. There is no one answer we can give them. It depends on the business and your vision for the business. Many entrepreneurs who get a startup loan or secure investment from an angel investor think that their funding journey is over. In most cases, it’s just begun.
Funding your startup should be viewed as a journey. If you want your business to grow continually it may not be enough to get just a startup grant or bank loan. You may require several funding rounds.
There are generally five stages of startup funding, however not all businesses go through every stage.
A very simplified version of the phases in startup funding are:
Idea Phase
The original entrepreneur thinks of the business idea and immediately invests time and their own money into developing the business idea.
Development Phase
This phase begins when the original entrepreneur has worked on the idea and proved the concept to themselves and close friends and family. Any investment should come from yourself.
Seed Phase
This is probably the most familiar stage of for most entrepreneurs. The idea has now reached a level of maturity that now needs to be fully tested in the marketplace. The founders believe is now ready to launch. They write a business plan and ask for investment from their family, friends and seek other investment options.
Angel Phase
If the business is growing rapidly and there is a commitment in the team to expand the business you should seek angel or crowdfunding investment.
Venture Capital Phase
If the business continues to grow rapidly and you are showing signs of becoming a market leader your business will attract attention from venture capital firms.
Conclusion
How much money you need to start a business depends on what stage you’re at. If you are looking for seed funding you should look for just enough money to get your product into the marketplace and make your first few sales.
Too many entrepreneurs believe they are in the seed stage but are in the idea or development stage when the only investment should be their time.
Seed stage entrepreneurs mostly ask for too much money for an unproven business idea. Asking for too much money prevents them from getting funding and can lead to them eventually losing hope and giving up on their ideas.
Overall it is much better to ask for significant investment once you are in the development stage and beyond.
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