There is one inevitable truth about starting and growing a business.
You need money.
That's why entrepreneurs spend much of their time looking for investors, and why venture capitalists have assumed an increasingly influential role in business. According to the accounting firm Ernst & Young, the amount of money venture capitalists invested in companies rose from $24.5 billion in 2009 to $72.3 billion in 2015. Separate surveys by the Center for Venture Research at the University of New Hampshire found angel investments in the U.S. rose from $17.6 billion to $24 billion over roughly the same period. Angel investments serve as the initial funding for many start-ups.
With the occasional blip, those totals are likely to continue rising as venture capitalists and other investment groups look for the next Apple or Facebook.
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Below you'll find a summary of different stages of funding a business. They start with pre-seed capital and extend to later-stage capital infusions that enable firms to make the final push before they become publicly traded companies.
1. Pre-Seed Capital Stage
Typically, pre-seed capital may be provided by family and friends who know and want to support the entrepreneur.
Since very little is known about the product at this high-risk stage, pre-seed investors tend to fund smart, unique ideas. These are not the only resources available to entrepreneurs at this initial stage. So-called seed accelerators offer services such as mentorship, office spaces and programs that help entrepreneurs refine pitches to investors.
Top U.S. accelerators in 2015 include Y Combinator, Angel Pad, Mucker Lab and Tech Stars.
A full 95% of entrepreneurs surveyed in 2014 said that the pre-seed programs they attended were worth the equity stake they gave up. However, some observers of entrepreneurship argue that looking for excessive funding at this stage may kill credibility with bigger investors in the near future, making funding difficult at later stages.