Obtaining financing from outside sources is one of the most important and longest processes in the life of a venture, lasting until it gains financial independence. The issue of financing is, no doubt, one of the primary problems facing all businesses. In startups, however, which require large amounts of outside capital to develop their products and penetrate the market, and which generally have no revenues for long periods of time, this problem is multiplied and enhanced.
As opposed to mature companies which have "cash cushions" and can withstand periods of lack of funding, many startups go out of business because they lack financing, not because their products have failed. A startup's cash flow depends mainly on its ability to raise capital to meet ever-growing needs, typically more than on its ability to deliver its products to the market. An unfortunate timing in the capital markets can also thwart the successful launch of promising products.
This part of the book addresses all the aspects involved in financing the venture: why financing is conducted in stages and how it is done, the practical aspects of raising capital, the methods of raising capital, the contractual agreements involved in raising capital, valuation of startups, and so forth.