For running a Startup you not only need a creative idea, but a capital is a very vital part which can boost your initial business to a larger scale. If you are a new entrant in the Startup world, then you will need to be familiar with all the stages of Startup funding and investment.
The stages we will discuss will help you to make a better deal with the investors. The stages of Startup funding can vary from 4 to 5 depending upon the hold of your market in the arena of business. A highly versatile founder of a startup can easily go through all the stages. Here we will discuss all the 5 stages in Startup funding, which can lead you to new heights.
The 5 stages of Startup Funding are:
1) Seed Capital
This is usually the very first stage of investment offered to a Startup at its initial idea. The money or capital is provided for market research and product development. This is a primary stage, which can assist you to make a new lead in your business. In most of the cases, the CFO (Chief Founding Officer) invests his own money from his personal savings or some financial assistance from family and friends.
Seed Capital can be received as a loan or in interchange for mutual stock. The seed Funds are not required for many Startups but in most cases, seed funding will help you to make an important player in the market. There is an another term called Crowdfunding where funds are collected from the public through Websites, stage show etc.
2) Angel Investor Funding
Sometimes seed capital is not enough for scalability of your business and it becomes very important for an entrepreneur or founder of the startup to make use of wealthy individuals outside their friends & family, which is often called as Angel Investors helping as an Angel to push up your business to a new height.
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The funds taken from the Angel investors can be altered to the desired stock. This fundraising can help a startup to achieve its goal and set a new benchmark in the business industry. The friend and family investors sometimes participate in Angel Fundraising.
3) Venture Capital Funding
This is the next and one of the most important stages. It is usually used by the Startups that have already started distributing/selling or providing services to the market without considering whether the startup is profitable or not. The Venture Capital funding is a step-wise process which can be divided into Series A, Series B, and Series C. The distinctive VC rounds reflect different valuations.
In the event that the organization is flourishing, the Series B round will esteem organization stock higher than Series and afterward Series C will have a higher stock cost than Series B. In the Series A, B, C, and so forth adjusts of financing, cash flow is normally grown in return for favored stocks.
Let’s discuss each process step by step-
Series A venture is the usually the first round of financing when the seed stage does not require outside funding. At this phase of Series A, new companies have a solid characterized objective for the item or administration.
Series A funds might be utilized for advertisement and marketing, maintaining the management and administration cost, entering new markets, connecting with various demographics and mainly scaling the startup.
The essential capacity of a Series A venture is more often than not to take a startup to the following level. Capital raised in this round is regularly used to meet new deals, targets, and characterized business objectives.
When a startup is setting out toward Series B speculation, it is well in its approach to building up its business. The item or administration is overseen well, the publicizing is going solid, and clients are effectively obtaining a related item or administration as arranged.
Seed B funds might be utilized for growing a group or business team, expanding office space, compensations and taking the business worldwide if it is possible to scale.
This stage may or may not be required for a startup. There is actually no restriction on the number of ventures adjusts a startup can get. Further speculation rounds will rely on upon the agreement between a startup and investor.
As a rule, in spite of the fact that there are exemptions, CFO and investors don’t need their stake to get diluted. As the venture rounds advance further and more value of the organization is discharged, Series C rounds are viewed as a matter of consideration between the founder of the startup and investors.
Understanding the different rounds will help a potential startup settle on the most fitting strategy. The terms which are used to portray these investment rounds can appear to be overwhelming, yet it doesn’t need to be. A big part of this is understanding the different rounds of investment so that you can arrange them easily and confidently.
4) Mezzanine Financing and Bridge Loans
In this stage, there are no worries for a Startup owner because it takes a lot of hardship to reach here. At his stage, the Startups should focus on the opportunities that require extra essential funds which can help them in expansion throughout the world. At this stage, you require the following process:
- An IPO ( Initial Public Offering) is an important requirement.
- An achievement of a competitor is necessary to be known
- A management acquisition to know your hold over a particular category of the market
To do so you have to jump into Mezzanine financing or bridge loans. Mezzanine financing is required six to twelve months before you apply for an IPO and then the leads of your company are used to return the investment made by Mezzanine investors.
5) IPO ( Initial Public Offering)
At this stage, you are not a Startup anymore because your company gets listed on the stock exchange and you can raise money from the public by selling your stocks or shares to them. After the company being listed in the stocks can pay back the investors by raising money from the IPO.
The stages we discussed is very important for step by step growth of a company. Though you may not come across all these stages while fundraising, but you must know everything from top to bottom about fundraising and its stages. The potential startups with creative ideas can go through these stages with ease.
The founder of the Startup plays a very important role in making successful and profitable deals with the investors during fundraising. The first 3 stages are imperative for all fundraisers to achieve their goal and the last two stages are skyscrapers, but not for those who are deal makers. At last, you must be the deal maker and not a deal breaker to raise high funds from the investors.