Having an innovative concept that can change the world is only half the battle for technology companies. Having the resources to turn this idea into a successful business is the next step in helping to achieve the dream. Many early stage and startup companies will often seek outside funding through a variety of means. Understanding these methods and the processes involved is critical and must be carefully considered.
Friends and Family Round
Many, but not all, companies will initially capitalize via a friends and family round. This round is often more informal, and used for the initial formation of the company and product development, bridging the gap between a concept and a business. While less involved than other financing processes, this does not mean that legal requirements and processes should not be followed. The investment can be structured as either debt (a straight loan or convertible debt) or equity (stock or other ownership), and should have the proper legal elements in place, such as written evidence of the investment, stock certificates, capitalization tables, and approval by the board for the capitalization. Since there is likely not a fully-functional business enterprise in place yet, most of the documentation that the investors will want to see relate to the idea itself, how far along you are in development, and some projections of when investors will see a return.