Startup funding explained for beginners

Let me show you how startup funding actually works. Beginner friendly.
I’ll show you the different stages, if you should go for it, and how to get it.

Startup funding works in stages:

• Pre-seed
• Seed
• Series A
• Series B
• IPO (initial public offering)

And at every stage, the deal is the same:
Someone gives you money, and you give them a piece of your company.

Think of your company like a cake. Every time you raise money, someone gets a slice. And your slice gets smaller.

Right now, at the start, you own 100%. Keep an eye on that number. Because by the end, you’ll see that most founders own less than a quarter of their own company. And later I’ll tell you why I never took a single euro of funding for my startups.

The first stage is Pre-seed. Basically, when you are just starting.
You have a startup idea, maybe a first version of your product, but no customers yet.

So, when you need money, what do you do?

Well, you usually go to people who know you - Friends and Family.
Like, when your grandma gives you €2K, so "you can do your thing".

But there are also investors who put money into startups this early.
They are called angel investors. And what they do is - they are betting on you and your idea. They ask themselves one thing:

Can this founder pull it off?

So how much money do you get in pre-seed?
Well, not that much.

From friends and family, maybe a few thousand euros.
From an angel investor, a bit more. But the good thing is - your friends and family might lend you the money for free - and an angel investor usually only takes a small piece of your startup.

So, you still own most of it. That’s pre-seed. Enjoy that.
Because the next stage takes a much bigger bite.

Stage number 2 is Seed. Let’s say your product is live.
A couple of people use it and you have your first customers.
So, you’ve got some proof that your startup could work.
That’s when you can go for a seed round.

This is where professional investors come in for the first time.
So, the question changes. It’s not "Can this work?" anymore.
It’s "Do people actually pay for this?"

And it’s your job to prove that.

And I’m not talking about sign-ups or people on your waitlist.
I am talking about paying customers. Something real.

And now the money gets bigger. We’re not talking about €10k or €20K anymore, but more like €3M. So, the slice you give away is way bigger.

And here’s where founders make a huge mistake.
They forget the 51% rule.

Whoever owns more than half of the company makes the decisions.
So right now, after seed, you still own a bit more than half.
You can still make the decisions. But the next round will take you below that line.

And most founders don’t think about that until it’s too late.

Stage 3, Series A. Most startups never get to Series A.
Because Series A is for startups that can show one thing:

They can do it again and again.

Here’s the thing - getting 100 customers for your product is not that difficult. But getting new customers again and again - every month - that’s a different story.

Now who gives you the money? Venture capital firms.
Professional investors with big funds. And they invest a lot more.
Like €20M. And this is where it really changes for you as a founder.

Remember the 51% rule?
This is where you lose it.

After Series A, founders usually own about a third of their company.
Now look at your cake. There’s not much left for you. So now your investors decide with you. You can’t just say: "Next month we’re launching in the US." You need them on board.

Stage 4, Series B. Remember the number I told you to keep an eye on?
Here it is. You started with the whole cake. After Series B, you’ve got less than a quarter.

So why would anybody go for Series B?

Growth. Big growth. You have a business that works.
Now the only question is: If we put more money in, do we get more growth out? And if the answer is yes, you go for Series B.

Now bigger investment firms come in. And the rounds get bigger too. Around €30 to €40M. And again, even more people have a say.

Stage 5, IPO. IPO means your company goes on the stock market.
And anyone can buy shares. You, me, your neighbor.

But why in the world would you do that? I mean, you already own very little of your own company, right? Well, 2 reasons:

You can raise even more money. And - and here comes the interesting part for you as a founder - you and the team, you can finally sell your shares and cash out - if you want to.

But going public comes with a price.

Every three months you have to show your numbers. Everyone’s watching. It’s pretty much like working on your laptop on the train, and the person next to you keeps looking at your screen. Pretty annoying, right?

But that’s the price.

So those are the five stages. Now, should you go for it?
I never raised a single euro for my startups. And I remember when I started building my startup, so many friends told me:

"Oskar, if you want to build a startup, you need funding."

But that’s not true. I wanted to keep all my shares. 100%.
And I had no reason to raise money. You only want funding if you have a real reason. If you need to scale fast. If you’re in a market where the fastest one wins, and you can’t get there with your own sales.

"Startups need funding" is not a reason.

In my mastermind, I have founders doing over €1M in revenue.
They built it all themselves. No investors. Yes, it takes a lot of time and work, but they got there. And they own 100% of their company.

So before you go for funding, ask yourself:
"Can you get to your first 100 paying customers without outside money?"

Do that first. You can still raise later. And if you do, you already have some proof. Which means you have to give away less.

But let’s say you have a real reason. You need the money.
How do you actually get it?

I’ll keep this to pre-seed and seed, because that’s where most of you are right now. Four steps. And the last one is the one most founders mess up.

Step one:
You need to get proof first. Professional investors don’t just give you money for your idea. They want to see that it works. Like paying customers. Customers who keep coming back. Or a test project with a company.
The more proof you have, the easier it is.  

Step two:
Before you go for real investors, start close to home. Like, people who already know you and trust you. That’s where most first money comes from. And most of the time you don’t have to give away equity.

Step three:
Find the right investors. When you look for an investor, remember it’s really not only about the money. It’s about a lot more. About their network, their knowledge. You want one that knows about your industry, someone who can point you in the right direction or someone who can connect you to the right people.

Step four:
Keep your pitch simple. What’s the problem. What’s your solution. What’s your proof. How much do you need, and what will you do with it. That’s it. Most founders make this way too complicated. 80-page slide decks, AI generated.  Don’t do that. Investors are busy.

Startup funding works in stages. Pre-seed, seed, Series A, Series B, and IPO. And every stage costs you a slice of your cake. That’s the trade-off.

So only go for it if you really need it. Not because someone told you startups need funding. And the more proof you have that your startup works, the less you have to give away.

But getting that proof on your own is hard. That’s exactly what we work on in my startup mastermind. You get personal coaching from me, and you can talk to other founders who’ve been there and see what actually worked for them.

If you want to build your startup without giving away equity, you can join right here: