A startup demands more than just a great idea. It demands a lot of time, effort, focus, dedication and of course, funding. According to a survey of British Business Bank, more than 60% of start-ups require external funding rounds with an aim of elevating their roots firmly. So, if you’re a startup and looking for raising the funds, you need to make yourself familiar with these different funding stages as well as the different investor types. Let’s get started.
What is a Funding Round?
Startups don’t just settle by raising a lump sum of cash or getting a startup business loan. A startup has to go to the market for numerous times to raise the capital. Each and every raises of capital is known as a ‘funding round’. In each funding round, a startup has to explain that its idea and planning deserves the funds by fulfilling various goals and challenges persistently. Each round is designed to give entrepreneurs and their businesses enough capital to level up and to reach at the next milestone. The interval between two rounds generally tends to be of 12 months. However, it can be varied from startup to startup. Below is the brief idea of startup funding stages:
Here, the initial funding is considered as the “seed” which allows startup to flourish. When you provide appropriate water i.e. a successful business strategy along with the dedication and actions in right directions, the startup will eventually grow into a “tree”.
1. Pre-Seed Funding Stage:
This stage is commonly known as bootstrapping. In simple terms, it means using own existing resources in order to scale the startup. Startup founders make investments from their own funds/savings and try to develop themselves in the most inventive approach. For startups, this operational stage is known as the ideation stage.
No. | Funding Stage | Startup Valuation | Potential Investors | Approx. Fundraising | Startup Stage |
1 | Pre-Seed Funding Stage | 10k-100k | • Startup Owners • Friends & Family | 50k | • Exploring the feasibility of an idea • Market testing |
2. Seed Funding Stage:
This is the first official equity funding stage. It states the first official money that a business venture raises. Seed round takes place when a startup has established properly. One of the most usual forms of investors engaging in the seed funding round is an “angel investor.” Angel investors tend to appreciate riskier ventures (such as startups with little proven track record so far) and expect an equity stake in the business in exchange for their investment. Seed funding allows a startup to fund costs of product/service launch, get early traction through marketing, initiate important hiring and further market research for developing product market fit. Therefore, this stage is identified as a validation stage for startups.
No. | Funding Stage | Startup Valuation | Potential Investors | Approx. Fundraising | Startup Stage |
2 | Seed Funding Stage | 3m-6m | • Angel investors • Friends & family • Micro Venture Funds (VF) • Crowdfunding | 3m | • Product/Service Launch • Build traction until revenue generation begins • Recruiting • Market research for product/service |
3. Series A Funding Stage:
This is the primary stage of venture capital financing. v Till now, the startups definitely have a blooming product and a client base with steady revenue flow. So, this is an appropriate time for them to opt for series A funding and enhance their value offerings. This is an excellent chance for startups to assess themselves across the market. In this stage, investors are looking for companies with great ideas as well as a strong strategy for turning that idea into a successful, money-making business. This is called as an early traction stage for startups.
No. | Funding Stage | Startup Valuation | Potential Investors | Approx. Fundraising | Startup Stage |
3 | Series A Funding Stage | 10m-30m | • Venture Capitalists • Super Angel investors • Accelerators | 15m | • Well established business model • Managed by an efficient team • Further development of product/service • Scalable market blueprint |
4. Series B Funding Stage:
This stage is about taking the business to the next level, crossing the development stage. By now, startups have demonstrated themselves before investors that they can achieve success at a larger scale. Series B funding stage is almost similar to the previous funding stages in terms of processes and key players except addition of a new wave of VCs that specialize in investing in wellestablished startups so that they can further exceed expectations.
No. | Funding Stage | Startup Valuation | Potential Investors | Approx. Fundraising | Startup Stage |
4 | Series B Funding Stage | 30m-60m | • Venture Capitalists (VCs) • Late stage VCs | 30m | • Scaling up • Increased market share • Strong management • Outlive competitors |
5.Series C and Beyond Funding Stage:
Startups that make it to the series C funding stage would be focusing upon scaling their startups as soon as possible. These startups look for greater investment that would assist them develop new products, reach new markets, and even acquire other under-performing startups of the similar industry. v In the series C stage of funding, investors happily fund successful startups. They are hopeful to acquire money that is more than they invest.
No. | Funding Stage | Startup Valuation | Potential Investors | Approx. Fundraising | Startup Stage |
5 | Series C and Beyond Funding Stage | 100m-120m | • Late stage VCs • Private Equity Firms • Hedge Funds • Banks | 50m | • Expansion • Directing the business towards IPO track • Increased market share |
6. Initial Public Offering (IPO):
When a startup decides to raise funds from the public including institutional investors as well as individuals, by selling its shares, it is known as an IPO (Initial Public Offering). IPO is associated to ‘going public’ as the general public desires to invest in your company by buying shares.
|
No. |
Funding Stage |
Startup Valuation |
Potential Investors |
Approx. Fundraising |
Startup Stage |
|
6 |
Initial Public Offering (IPO) |
100m in revenue |
• General Public |
50m-500m or more |
• Stable financials • Good corporate governance developed • Powerful team management • Positive market sentiments |
In a Nutshell,
The above discussed various startup funding stages allow entrepreneurs to scale their startup at any stage of their entrepreneurial journey. This assessment practice permits them to discover wherein their startup stands and which potential investors would invest in them with a view to helping them grow.