Funding Round
A funding round is a formal process in which your company raises capital from external parties in exchange for equity shares of ownership.
What is a funding round?
A funding round is a formal process in which company's exchange ownership in the company (in the form of preferred shares) for cash to run the business. These can be very small, to the tune of a few hundred thousand dollars, to very large at over $100 million.
Is there a limit of how many funding rounds you can complete?
In theory, there is no limit to the number of funding rounds a company can do. That being said, after a certain point, other options become more attractive than continuing to do subsequent rounds, such as go public via an IPO or issue debt instead.
What is the benefit of a funding round?
A funding round enables a company to raise capital for expenses. This can be very helpful for certain companies that do not have enough cash to execute their business plan and do not have other financing options available. It could be helpful to think of this as similar to when public companies issue more equity to raise capital, essentially achieving the same end result of diluted ownership but more cash on the balance sheet.
Are funding rounds good or bad for employees?
Like everything in life, there are two sides to every coin. On one hand, the employee may not appreciate the funding round because it will dilute her or his ownership in the company. That being said, without the funding round, the company could run out of cash and go bankrupt.. which would be significantly worse than dilution.
