Funding rounds: what they are and why you don't always need one

Every week someone announces a funding round. Millions, a smiling team photo, a headline in the press.

And it's easy to end up thinking that raising money is what makes a company real.

It isn't. It's a tool. A very good one for some companies. An unnecessary one for many others.

Here's what it is and how I think about it, from a company that hasn't raised a round in twelve years.

What is a funding round?

A funding round is when a company sells part of itself to investors in exchange for money.

It isn't a loan. You don't pay it back.

In return, those investors become owners of a slice of your company. And they expect that slice to be worth much more in the future.

That last sentence is the important one. I'll come back to it.

Types of funding round

• Friends, family and fools: the first money, from people close to you who believe in you.
• Pre-seed and seed: to validate the idea and land the first customers. Usually angel investors and small funds.
• Series A: when the product already works and it's time to scale it. Venture capital funds come in.
• Series B, C and beyond: to grow faster, expand into other countries or buy other companies.

Each round usually means giving up another percentage of the company. That's called dilution: your slice of the pie gets smaller, in the hope that the pie grows much bigger.

What a round buys (and what it doesn't)

A round buys speed. Hiring sooner. Getting there sooner. Taking a market before someone else does.

What it doesn't buy is time.

At Foxnice we put it like this: a funding round doesn't buy you time, it starts a clock.

Remember: investors expect their slice to be worth much more. That means growing fast. Growing fast means spending fast. And when the money runs out, either you've grown enough for the next round, or you need to find another way out.

That's neither good nor bad. It's the game. But it's worth knowing which game you're signing up for before you sit down at the table.

When it makes sense

• When your market rewards whoever gets there first, and coming second means not getting there at all.
• When building the product costs a lot before anyone can pay for it: hardware, biotech, infrastructure.
• When you want to build something very big and accept the rules that come with it.

When it probably doesn't

• When your customers can already pay you today for what you do.
• When your market is a niche that won't be huge, but will be profitable.
• When what you're after is freedom more than size.

That was our case. Sports clubs, rural guesthouses, restaurants. Markets that will never make a headline, but where a well-made product gets paid for every month.

The alternative: let your customers fund you

Growing with what you earn has a name too: bootstrapping.

We started with €300. Every step since then has been paid for by a client. And that work pays for the next thing we want to build.

It's slower, yes. But every decision is yours. You don't have to explain to anyone why you'd rather grow a little less and sleep a little more.

Your customers are the only investors who don't ask for a stake. Just that you deliver.

Before you look for investors, ask yourself this

1. What exactly is the money for? "To grow" isn't an answer.
2. Could I get the same result by charging customers? Even if it takes longer.
3. Do I want to build something huge, or something of my own? Both are legitimate. But they call for different paths.

There's no right answer. There's yours.

And it's worth being clear on it before someone offers you a cheque.

P.S. If you want to know why we never raised, I explain it in I don't want to raise. I want to choose.