money

How To Find Out How Much Money You Need To Start A Business

Kurt GraverBusiness Start-up Advice

One of the most common questions entrepreneurs ask is, “How much money do I need to start a business?”. There is no single figure, as capital needs depend on your specific concept, model, goals, and growth phase.

Many founders think fundraising ends once they get initial capital. However, securing startup funding should be viewed as a journey rather than a one-time event. To scale your business, you will likely need various financing rounds.

Here is an overview of the typical funding stages for a new startup:

Phase 1: Idea Stage

This phase starts when an entrepreneur initially comes up with a business idea. They may invest their time and limited capital to do market research, refine their concept, and develop prototypes or demos.

No major capital is needed beyond the founder’s savings. The goal is to prove initial viability to lay the groundwork for future funding.

Actions:

  • Research the target market and opportunity
  • Refine the business idea and model
  • Develop a rough concept/prototype
  • Determine an approximate funding need

Capital Needed: $2,000 – $15,000 of the founder’s own money

Phase 2: Development Stage

The idea has evolved where the founder actively puts the business model into motion. This may involve finalizing the product design, ramping up technology, and initiating conversations with future partners and customers.

The founder or founding team starts moving from planning to execution. However, major expenses are still avoided before formal fundraising. Capital comes from personal savings or contributions from family and friends.

Actions:

  • Build an MVP (minimum viable product)
  • Contact prospective partners/customers
  • Nail down technical specifications
  • Develop a business plan summary
  • Create financial projections
  • Determine an approximate funding need

Capital Needed: $15,000 – $75,000 from personal savings, friends, and family

Phase 3: Seed/Early Stage

This phase typically represents the first formal fundraising round from external investors, such as angel investors or early-stage venture capital firms. The goal is securing enough capital to launch and commercialize the product or service fully.

The business should now have momentum beyond just the founder’s energy. This is an “execution” stage, taking the idea to market. A pitch deck is created to demonstrate traction and plans for scale.

Actions:

  • Incorporate the business
  • Build out a prototype/MVP
  • Launch pilot projects/programs
  • Initiate a marketing website
  • Develop a thorough business plan
  • Create a fundraising pitch deck
  • Reach out to investors

Capital Needed: $100,000 – $2 million from angel investors or seed funds

Phase 4: Early Growth Stage

With market traction and initial customers, the priority becomes rapidly improving the product and user base. Additional capital is needed to fuel this growth and optimize operations.

Revenues may still be low relative to expenses. Profitability likely isn’t the top priority yet. The focus is gaining market share and increasing value.

Actions:

  • Roll out full product/service offering
  • Refine pricing model and sales process
  • Implement marketing campaigns
  • Build out team and internal systems
  • Analyze unit economics and ROI of acquisition channels
  • Update pitch deck based on new metrics

Capital Needed: $500,000 – $5 million from VC investors

Phase 5: Late Stage

The product is established, and customer adoption is accelerating. The priority shifts from acquiring customers to operational scale and optimizing the business model.

Significant capital is needed to expand facilities, technology, staff, production, inventory, marketing, etc. Profitability becomes more of a focus, working towards a potential exit.

Actions:

  • Rapidly expand distribution channels
  • Grow team across business functions
  • Initiate new product lines or business units
  • Establish internal processes/systems
  • Develop a plan to become cash flow-positive
  • Analyze options for exit/liquidity event

Capital Needed: $2 million – $10+ million from VC investors

Key Takeaways

  • Most startups evolve through 5 primary funding stages as they grow
  • Each stage has different goals that require varying amounts of capital
  • The source of capital evolves from personal to external as the business matures
  • Many founders underestimate how much total funding is required over time
  • Raising the right amount at each stage sets up success for the next round

While every startup’s funding needs are unique, understanding typical stages provides a helpful guidepost. Take a long-term perspective, raising just enough capital to hit key milestones to your ultimate vision systematically. With smart pacing, your startup can go the distance.