A Simple Guide to Startup Funding: What Stage Should I Join?
The startup world can be a confusing place.
Working for a tech startup allows you to very quickly expand your skillset. Many are drawn in by the promise of innovation and the excitement that comes with bringing ideas to life.
But if you are someone who is worried about the risks involved in joining a company early on in their journey, then knowing what stage they are at will help you evaluate the risks involved.
There is no one-size-fits-all solution, some people may thrive in early-stage startups, whilst others find they work better in the later stages. We hope that by understanding the differences in funding, you will be one step closer to finding your right job.
Of course, not all companies will secure funding in the same way- some will receive grant funding, and some bootstrapped companies don’t gain any external funding at all.
But being aware of the differences in funding through each stage of the startup journey- from pre-seed to IPO- may help you to make that leap of faith into your startup adventure.
The pre-seed stage is essentially the idea stage. The company will have a very early-stage product and are looking to raise funding. Joining a startup in its pre-seed stage, you will likely be one of a handful of employees.
Maybe you’ll get a chance to be called a co-founder and / or gain significant equity. But you might also be expected to forgo some or all of your salary until further funding or revenue is achieved.
The most common investors in pre-seed companies are the founders themselves, along with support from friends and family.
Why join at the pre-seed stage?
- Develop many different skills
- Non-linear career progression (but can be much quicker)
- More autonomy
- Smaller team
- Personal growth
- You have a voice in the company journey
- High-risk, high reward
Whilst some seed-stage companies may be making revenue, many are focused on establishing a clear product and market. Seed-stage teams are slightly bigger at about 5-15 people.
For the companies who become profitable, there is the option of self-funding. In this case, they can skip the series A-C funding as they have already got their company off the ground.
Salaries are typically lower in pre-seed/ seed stage due to the lack of funds, but some companies will offer employees shares in the company. Alternatively, you may be offered options to shares at a lower price (meaning they are open to you, but you’re not obligated to invest).
Typically, your vesting period (the period of time you wait before fully owning your shares) is about 4 years. Some companies put in a one-year cliff, meaning that this is the minimum amount of time you are required to work before gaining access to any of your shares.
This is put in place to motivate and retain employees whilst improving the product and drive towards business success.
Why join at the seed stage?
- Possible shares in the company
- More security than the pre-seed stage
- Autonomy and creative freedom
- Able to build from the bottom up
- Expand your skillset
These are the stages where the big money starts coming in. Typically, companies in series A round funding look to raise anywhere between $2million and $15million (£1.5million-£11million)
As a company advances from series A, it will have an established user base, consistent revenue, and a plan to scale the product for long-term profit. Establishing a clear strategy is crucial to securing funding as investors aren’t just looking for ideas anymore, they are looking for that hockey stick growth.
Big VC firms and equity crowdfunding are used to raise the money needed to expand market reach and build additional funding to scale a business.
Getting to series A doesn’t mean a company needs to get to series B, or that they’re capable of doing so. The risk might be less than seed stage, but typically only 50% of companies will make it to the next letter in the alphabet, so be aware that there’s still a risk here but also a reward.
Why join at the series A-C stage?
- Increased job security joining a more established company
- Clearer expectations and career paths
- Consistent revenue and product
- Potential of higher salaries
- A larger team
Initial Public Offering (IPO)
If the company secures all the necessary funding and wants to go public then they can advance into the Initial Public Offering stage (IPO).
There is a lot of legal work involved and the company will spend big money on marketing and documentation with the hope that by getting investment from the public to raise capital they will increase conversions, exposure, and boost sales.
There is also the opportunity of liquidity to existing investors, allowing investors and employees to sell their shares and monetise their investments.
Why join at the IPO stage?
- Work with a more recognised brand
- Potential to have more employee benefits
- Higher level of job security
- Higher salaries
- A more solid business structure
- Established career path
This is a very simplified explanation of the startup funding journey, but it gives an idea to the complexity of the process.
Before joining any company, it is important to do your research and understand who the founders are and what they want the business to achieve. But keep in mind that whilst the startup funding stage may be indicative of a wider dynamic, it is not necessarily the be-all-and-end-all of your startup journey.
If you are interested in knowing what startups are looking for, then check out our blog on skills startups look for in a candidate.
There is no right or wrong way of working. Whether you prefer a fast-paced, independent environment or a more structured career path with a larger team, your right job is out there.
And we would love to help you find it!
If you have any further questions surrounding the startup world, our team of consultants are more than happy to have a conversation with you. Don’t hesitate to pick up the phone at 0117 428 0600