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On an early morning in summer 2021, a small group of engineers and drone operators gathered at Lake Elsinore in California to see if their machines would fly as designed. With newly incorporated sensor technology, it was the first time the founders of Leesburg-based Flying Ship Co. attempted to fly one of their autonomous vehicles over a lake.
“When we first got it off the ground … that was a nail-biter,’ recalls Flying Ship co-founder and CEO Bill Peterson. Founded in 2020, Flying Ship makes unmanned cargo aircraft.
“We didn’t know if it was going to work. We didn’t know what kind of conditions it would work under, but seeing it work over a body of water was incredible, nerve-wracking and exhilarating all at the same time,” Peterson says.
For startups and founders, feelings like those can extend to navigating the various funding rounds for securing capital to grow a business and keep it afloat. In pre-seed, seed and early-stage funding rounds, companies take shape, often relying on angel investors, family and friends to cover initial costs. In Series A rounds, growing companies share performance metrics and may rely on funding from one major investor or stock sales. In Series B rounds, proven companies continue to develop their market shares past initial development stages. And in Series C, often already profitable companies look to expand.
When it comes to reporting capital, all startups have to report what they have raised to the U.S. Securities and Exchange Commission, and there are specific rules guiding general solicitation and from whom companies can solicit funding. Founders should seek advice from support organizations or lawyers with specific knowledge about raising capital.
In pre-seed and seed funding rounds, successful funding comes from helping others see your vision, says Scott Janney, co-founder and CEO of Norfolk-based Magazine Jukebox, which provides digital magazines, games and trivia to businesses like doctors’ offices to offer in waiting rooms. Magazine Jukebox had raised $2.7 million in seed funding as of May and plans to raise another $1.6 million, transitioning to Series A in 2025 or 2026. Janney likens navigating the funding stages to traversing mountains and valleys, with the “easy part of fundraising” being the mountain. “When everyone can see what you’re doing, it’s easy,” he says. “The valleys, where you’re making it stretch and working to improve, are what no one sees.”
Seed rounds are often about the comfort level between investors and entrepreneurs, says Robert Gourdie, founder of Roanoke-based The Tiny Cargo Co. Founded out of lab research at Virginia Tech in 2018, Tiny Cargo extracts exosomes — extracellular biological particles — from cow’s milk for therapeutic and nutraceutical uses on an industrial scale. The company raised $940,000 in a 2023 seed round, and also has secured venture capital backers and grant funding, all of which require different approaches, Gourdie says.
“When you’re raising capital in a seed round, you meet face-to-face with an investor, and it’s an interesting and important difference [from applying for grants] because you have to look investors in the eye and feel comfortable with the story you’re telling, and they have to feel comfortable with you,” he says.
Flying Ship’s Peterson calls it “betting on jockeys, not horses. … If you have an awesome team in place, boast about the phenomenal people you have,” he says, sharing lessons he learned during the 2022 pre-seed round in which the company raised $500,000.
‘No one perfect formula’
Jen Finn is co-founder and CEO of Richmond-based HIO, which provides an artificial intelligence customer service texting chatbot to property management companies. She has sat on both sides of the table — as an angel investor and as a founder seeking funds, she says. Her advice to founders: Find your niche, show investors the scalability of your product and balance accessibility, all while understanding how much of the company shareholders and investors should have.
HIO raised $95,000 in grants in 2022 from the Virginia Innovation Partnership Corp.’s Commonwealth Commercialization Fund, $20,000 from Lighthouse Labs and another $450,000 in convertible notes from friends and family. She has not had to give up any equity in her business yet, she says, but that could change in the future because of the convertible notes.
Each funding stage has its own challenges, and there’s no set time for how long a round can last or how many times a company can repeat a stage.
Many companies are receiving less funding than they may have two to four years ago, with companies not progressing through the series or going through multiple seed rounds, says Paul Nolde, managing director of 757 Collab and executive director of 757 Angels powered by VentureSouth.
“Three years ago, we were in a founder-friendly cycle, valuations were high, and terms were founder-favorable, but now it has largely switched to an investor-friendly cycle,” says Nolde. “Capital is a little more constrained, but I believe the best companies will always find capital.” Rising interest rates and pushback against overvalued companies earlier in the 2020s have resulted in large investors and firms keeping their money close.
In the past, Nolde has counseled fledgling companies to raise only what they need at the time, but with private funding less available, companies should build in a cushion, Nolde says.
Many venture capital groups are pulling back and focusing inwardly on their existing portfolios, leaving companies in early-stage funding rounds for longer periods, says Rich Diemer, managing director of Charlottesville-based CAV Angels, a nonprofit investor network of University of Virginia alumni, faculty, parents, students and friends. There’s no one perfect formula for funding, he says.
“My advice is to avoid short-term people who are trying to take advantage [of your business],” he says. “That’s the importance of relationships. … Stick with the people who will stick with you.”
Even for mature companies, successful later series funding rounds are still “a grind,” says Ed Rogers, CEO and co-founder of Charlottesville-based Bonumose, which is commercializing the production of tagatose, a natural sugar with a low-glycemic index. Bonumose completed a Series B funding round in early 2021, raising $34.68 million, according to SEC filings, and is currently in a Series C round.
Rogers encourages entrepreneurs to find investors who have skills and resources that can help their businesses in the long run.
“Raising money and running a business are not the same,” he says. “If you can find somebody who writes a check but also has connections and expertise, that makes your organization more valuable.”
