Early-Startup Phase

~Series B (third round) financing ~

This information is provided for general informational purposes only and should not be relied upon as legal interpretations by the Office, shall not supersede any part of the Florida Statutes or Florida Administrative Code, and does not constitute legal or financial advice. The Office does not endorse any third-party or guarantee the accuracy of any third-party information linked to or referenced herein.

The early-startup phase focuses on meeting the financial needs of operational companies to grow the business. Companies in this phase have established operational systems and generated multiple years of revenue and have a demonstratable potential for profit. 

Financing in the early-startup phase is typically called Series B financing. Funds are often used to scale production and expand the customer base.

Business Revenue

Also known as ‘retained earnings’, companies can invest their revenue back into the company for future development and expansion. Before using business revenue for this purpose, consider the following:

  • Are the business operations and infrastructure established?
  • Does the company have sufficient cash flow?
  • Is the company profitable?
  • Does the company have any outstanding debt?
  • Does the company anticipate additional or immediate expenditures?


Research and Business Grants 

Various grant funding opportunities are available from state and federal governments as well as some private organizations. Most grants are directed toward non-profit organizations and organizations conducting research and making innovation efforts. Before applying for a grant, consider the following: 

  • Do you understand the terms and requirements of the grant? 
  • How must the grant funds be utilized?
  • Do you have the additional time and effort for the application and reporting requirements?
  • Does the grant align with your business plan?

Early-Stage Community Business Loan

Some lenders partner with state or federal government community programs to offer loans to qualifying early-stage businesses. Often, these programs have specific eligibility requirements and are designed to provide access to startup capital to underserved communities. Before meeting with a lender regarding an early-stage community business loan, consider the following:

  • Can the company afford to take on debt?
  • Do the company’s projected financial statements reflect the ability for the company to repay the loan?
  • Are you willing to have your credit score affected?
  • Are you willing to offer personal assets or a personal guarantee as collateral for a loan?
  • Do you have a business plan and financial projections to share with potential lenders?
  • Will defaulting on a loan affect the performance of the company?


Traditional Business Loans

Financial institutions, government entities, and online and private lenders offer business loans to qualified applicants, typically those who have been operational for a number of years and can demonstrate a history of revenue. Before applying for a business loan, consider the following:

  • Can the company afford to take on debt?
  • Can the company afford to repay the debt in the specified timeframe?
  • Do the company’s financial statements show the potential for sustained profitability?
  • How will defaulting on a loan affect the company?

Investment Crowdfunding 

Investment crowdfunding is raising a small amount of capital from numerous non-accredited investors. Some types of crowdfunding are regulated by the SEC or state securities regulators while others are not. Before conducting a campaign, consider the following: 

  • What type of crowdfunding will the company conduct?
  • How much is the company seeking to raise?
  • What are the funds to be used for?
  • Is investment financing appropriate for the business's long-term growth plan?
  • Can the business afford the operational and transactional costs associated with crowdfunding? 
  • Can the company afford the additional time and compliance efforts associated with crowdfunding? 
  • Can the company afford legal and other professional fees associated with crowdfunding? 
  • Can you afford to provide investors with offering updates and financial reports?
  • Are you able to facilitate shareholder meetings and handle investor input into company operations?
  • Does the company have a consumer or online following to market the offering to? 
  • Will the company use a third-party platform and if so, what platform?
  • Is management willing to surrender equity in the company? 
  • Do you understand the future implications of equity dilution in the company?


Angel Investors 

Angel investors are high net-worth individuals who invest early in business endeavors in which there is a high-potential for success. Angel investors typically want to see financial statements showing revenue flow and the potential for future profits. Before seeking capital from angel investors, consider the following:

  • Is investment financing appropriate for the company’s long-term growth plan?
  • Can you afford to provide investors with offering updates and financial reports?
  • Are you able to facilitate shareholder meetings and handle investor input into company operations?
  • Are the company owners and board of directors willing to surrender equity in the company? 
  • Has the company considered the future implications of surrendering equity in the company? 
  • Is the company prepared to comply with the securities laws and applicable reporting/filing/disclosure requirements?
  • Can the company afford the legal cost of raising investment capital?
  • Does the company's performance or initial market research reflect revenue flow and the potential for future profits? 
  • How will the company provide liquidity to investors? 
  • Does the company have a viable exit strategy?


Venture Capital

Venture Capital is a source of investment financing from private firms, funds, or individual investors. Before seeking venture capital, consider the following:

  • Are you willing to give up some equity in your company to investors?
  • Is investment financing appropriate for the company's long-term growth plan?
  • Does the company have a viable exit strategy?
  • Are you willing to invite investors into a mentor partnership role with the business?
  • Can the company afford to manage investor expectations?
  • Have you considered the implications of equity dilution in your company?
  • Is the company prepared to comply with securities regulation requirements?
  • Can the company afford the legal costs associated with raising investment capital?
Other Considerations

Other considerations when deciding on financing in the early-startup phase:

  • Start-up companies generally are a high financial risk to lenders and investors. 
  • A company typically needs the most financing during its initial startup and growth phases. 
  • Expanding business operations can require significant capital.
  • Institutional lenders and investors typically want to see financial statements that show revenue flow and the potential for future profit.
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