Startup Planning & Funding
The startup process is not linear and often requires multiple iterations. However, the graphic below is a simple visualization of the startup process outlined in this Startup Guide.
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*Please note that while you cannot accept funding before forming a business entity, it is important to establish your funding strategy before entity formation and launch.
**Upon forming your business entity, university employees must clear conflicts of interest and conflicts of commitment through disclosure in the NuRamp system within 30 days. However, you are welcome to approach them earlier in the planning process with any questions or concerns. Learn more here.
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Non-university startups are not required to disclose their innovation to NUtech, nor must they clear conflicts of interest with the university. However, it is still wise to examine the equipment and other inputs used by your startup to ensure you clear all conflicts of interest prior to launching your startup.
Startup Planning
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Develop Business Model
“A business model is an integrated array of distinctive choices specifying a new venture’s unique customer value proposition that delivers value and earns sustainable profits."
– Thomas Eismann
Prior to writing a business plan, you need to establish your business model. A great way to begin is to complete the Business Model Canvas for your startup.
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The Business Model Canvas is a template many entrepreneurs use to identify their business model. It contains 9 boxes in which you examine the foundations and operations of your startup and identify how they are related. Continue below for an example of a sustainable tire manufacturing and distributing company called New Tire Co.
To complete your business model canvas, download the Strategyzer.com Business Model Canvas below or search for alternative templates. Business model canvases are a starting point for establishing your business model and do not require extensive information. Business Model Canvases look different for each type of business, so conducting additional research may help you fill out your template. Additionally, you may choose to visit the Strategyzer website, which contains information, business resources, and tools, or visit other credible sources.
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Develop Business Plan
Business Plans are important documents detailing information about what your business does, how it remains competitive, and how it intends to gain and utilize funding. Many entrepreneurs use their Business Model Canvas to complete their Business Plan.
Though Business Plans may have various forms to meet your evolving business needs, below are several components that are typically found in a startup Business Plan:
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Executive Summary
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Business Description
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Market Analysis
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Company Organization
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Products/Services Provided
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Detailed Description of Innovation
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Financial Outlook & Projections
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Summary
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Here are some resources to help write your business plan:
How to Write a Winning Business Plan by Harvard Business Review
Business Plan Template for a Startup Business by Score"
Simple Business Plan Template (2024) by Forbes
6 Free Business Plans, Templates, & Examples by HubSpot
Funding
Commercializing technology is typically a capital-intensive process. Entrepreneurs need to present their opportunity to investors or firms for funding their operations and growth. Many startups require financial resources to fund the development, operations, and growth of the company. One of the keys to a startup’s success is securing such funding. Startup funding may come from several sources, each type having particular advantages and applicability for different stages in your startup.
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Some ways of funding your startup include:
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Continue reading to learn about the funding opportunities available to entrepreneurs.
Funding
Financing startups can be a daunting element of creating a new business. Traditional business loans often require one or more years in business, so they are inaccessible to new startups. However, there are several other financing options:
Self-Financing
Self-financing is the process of funding a startup with the founders’ personal capital and savings. Organizations that are self-financed retain complete control over their business operations because they do not need to exchange equity for outside capital. Self-financing demonstrates clearly to investors in later growth stages that the business owner is serious about moving the business forward, as their own capital is on the line.
Bootstrapping
Bootstrapping can include the reinvestment of early product sales into a company. It requires a customer-centric process of development that permits the company to bill for early sales. Bootstrapping allows entrepreneurs to maintain control of a business without having to pursue outside funding and influence while also preventing entrepreneurs from risking their own personal savings.
Angel Investing
Angel investors are typically high-net-worth individuals who meet the IRS and SEC definitions of an accredited investor and are seeking to invest in startups with high growth potential and ROI. Recent trends suggest angels are increasingly working together or in groups. Often, angel investors contribute capital in exchange for equity in the company. Some investors may want to play an active role in business decisions, while others prefer to stay uninvolved. Angels are seeking well-organized and talented teams that have a distinct competitive advantage in growing markets. They are typically involved in the seed funding stage and have the expertise and resources to help grow your venture; they generally hope to recoup their investments via exit strategies within 3-7 years of investment.
Venture Capital
Venture capital firms are professional, institutional managers of risk capital used to fund ideas that could not be financed with traditional bank financing. Venture capital firms make an equity investment in the startup’s illiquid stock. Consequently, any return on investment occurs from the stock’s appreciation and eventual liquidity, either from an IPO or a private sale.
Venture capital firms provide more than money to startups; once an investment is made, the venture partner may play an active role in the development and growth of the company and typically takes a board seat. Like angel investors, each investor has a different attitude toward their level of involvement, but most firms are hands-on, which limits the number of companies in which a VC firm will invest.
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If you would like to learn more about venture capital and how to fund your startup in general, we recommend the book Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist by Brad Feld and Jason Mendelson.
Incubators &
Accelerators
Incubators/accelerators: Incubators help very early-stage businesses by converting their ideas into a business. Accelerators drive growth and business for already existing businesses with growth potential. These programs are often accompanied by grants or scholarships to help fund your startup and may not require repayment. These programs often offer mentorship and guidance for your startup as well. There are national and local programs, so research your local area for the incubator and accelerator programs.
Some large national programs include:
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Some local/Midwest programs include:
Federal Grants
The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs offer grants to qualified small businesses. The purpose of these programs is to help fund early-stage research and development at small technology companies, including university startups.
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SBIR is a highly competitive program that encourages domestic small businesses to engage in research and development that has the potential for commercialization. The stated mission of the SBIR program is to support scientific excellence and technological innovation through investment of federal research funds in critical American priorities to build a strong national economy. The program’s goals are to:
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Stimulate technological innovation
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Meed federal research and development needs
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Foster participation in innovation and entrepreneurship by socially and economically disadvantaged persons
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Increase private sector commercialization of innovations derived from federal research and development funding.
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STTR
STTR is another program that expands funding opportunities in the federal innovation and development arena. Central to the program is the expansion of the public and private sector partnership to include joint venture opportunities for small businesses and nonprofit research institutions. STTR’s most important role is to bridge the gap between performance of basic science and commercialization of resulting innovations. The stated mission of the program is to support scientific excellence and technological innovation through the investment of federal research funds in critical American priorities to build a strong national economy. The program’s goals are:
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Stimulate technological innovation
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Foster technology transfer through cooperative R&D between small businesses and research institutions
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Increase private sector commercialization of innovations derived from federal R&D
Loans
The two primary options for startups to secure debt financing are either through banks or the Small Business Administration (SBA). Banks often want to see two to three years of financials before they consider making a business loan, which poses a significant challenge for new startups. Additionally, if a bank considers lending to a startup operation, the loan would be heavily collateralized with the entrepreneur’s personal assets. Alternatively, the SBA participates in loan programs that are designed to help startups.
Crowdfunding
Crowdfunding helps entrepreneurs raise capital through a campaign – typically online – in which anyone can donate to help the business. Though it is an attractive option because it does not require repayment, it can be difficult to reach your goals and is likely to lack significant impact.
Dilutive vs. Nondilutive Financing
Dilutive financing requires an exchange of equity or ownership of a company. Every round of equity funding results in dilution.
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Nondilutive financing allows founders to retain full ownership while still acquiring capital. Examples of nondilutive funding include grants and loans, including SBIR and STTR programs.
Equity vs. Debt Financing
Equity
Financing
Equity financing is the process of funding a business through the exchange of equity; because your investor receives equity in your company in exchange for their investment, you may not need to pay the investor back.
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Which Is Better?
Many startups have both forms of financing. Ultimately the type of financing you use depends on the nature and type of business you start. For small cash requirements, it may be cheapest to borrow from friends and family or a bank. The larger the organization becomes and the more cash it requires, the more likely your startup will need to consider equity financing.
The Startup Financing Cycle
This image is a visual representation of the startup financing stages.
Please note that many of the financial terms included in this guide are often used loosely in the startup ecosystem and may have varying definitions. NUtech recommends reading Venture Deals by Brad Feld and Jason Mendelson to better understand these categories.
Pro Tip:
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"FFF" in a funding context usually means "Family, Friends, and Fools," denoting the very early stages of funding when founders rely on close connections for funding.
There are several stages a startup must go through on its financing journey.
Pre-Seed Funding
Pre-seed funding is the first stage of financing; during this stage, your company is likely operating on borrowed capital from family and friends, and personal investments. Funds are often used to test the viability, feasibility, business model, and business operations.
Seed Funding
Seed Funding is the second stage. Your startup has hit the second stage when your idea is an actual business with some traction with customers. Often, seed funds are used for product launches, product marketing, market research, and hiring new employees.
Series A Funding
Series A funding is the third stage where venture capitalists generally invest in exchange for equity because they believe the company will succeed. Series A funding can finance the operations optimization of your startup, developing products or services, and plan growth. Â Â
Series B Funding
Series B funding is the fourth stage of the financing process and occurs when your startup has a dedicated userbase and steady streams of revenues, and you are looking to scale your company. Funds are often used to conduct advanced marketing research, increase market share, and form operational teams like marketing and supply chain teams.
Series C Funding
Series C funding is the fifth stage for companies that are successful and growing, often looking to globalize. Series C funds are often used to build new products, reach new markets, and acquire underperforming startups in the same industry. Â Â
Mezzanine Funding
 Mezzanine funding and bridge loans are designed for fairly mature businesses worth at least $100 million. Mezzanine loans blend debt and equity, while bridge loans are short-term financing loans. This stage closes the financing gap between seed funding and IPO, and generally are intended to be paid back with the proceeds from the IPO.
IPO
IPO or Initial Public offering is the final stage in the financing process. IPOs signal market success and help generate funds for further growth and may signal to the startup owners to exit the company by cashing out their shares if they wish to leave. Â
How Investors Evaluate a Company
Investors listen to pitches constantly, and only a small portion of startups receive funding. Investors will determine if the startup meets their strategic and financing goals and if the company fits into their current portfolio of investments. VC funds typically target a 20% annual return on the fund, which is significantly higher than other investment vehicles such as stocks and bonds. Investors typically perform due diligence before funding new opportunities.
There are several methods investors can use to evaluate a startup. When seeking investments from investors, you may want to conduct your own valuation using different methods so you are aware of your business’s value and determine the amount of equity you are willing to exchange for capital. Learn more about the different types of valuation methods here. The following are just some of the valuation methods investors may use.
Book Value
This method calculates the value of a company using its balance sheet. This method is simple but can be unreliable.
Discounted Cash Flows
This method is most common and estimates the value of a company based on the cash flows it is expected to generate in the future.
Enterprise Value
This method is the combination of debt and equity minus the amount of the company’s cash not being actively used to fund business operations.
Investors usually want their investments to be returned within 3-7 years of their investment, whether it be through an IPO, merger or acquisition, or liquidation. This is sometimes called capital recovery.
Mergers & Acquisitions
Mergers and acquisitions, while often used in conjunction, have notable differences. Both options can be executed for a variety of reasons, including expansion of market share, market reach, and attempting to create value for shareholders.
Mergers
Mergers occur when two distinct entities consolidate into a new entity with new management structures and ownership. Mergers do not require cash, but they dilute the power of the original entities.
Acquisitions
Acquisitions occur when one entity “takes over” another and can often be seen as the more “hostile” of the two. With an acquisition, no new entities are formed, and one company seizes the assets of the other and gains total control while the acquired entity loses control and ceases to exist. Unlike mergers, acquisitions are costly and require a large amount of cash.
At the very early stages in your startup, you are unlikely to need to perform a merger or acquisition as it is generally used for growth and competitive market share, but it is important to understand the concepts.
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Now that you have created your business model, business plan, and learned about financing, university startups must complete one more step prior to starting up: clear your conflicts of interest (COI). Here, you can learn about UNL's IP and COI policies and licensing.
Non-university startups can still benefit from learning about COI but are not required to clear conflicts with the University of Nebraska-Lincoln.
Click below to jump to the next step in the startup process.