There are many stages of fundraising in a startup business. Let's read this article to find out some of the steps.
Every firm depends on its financial health. A startup needs finance to develop its business from ideation to income creation. Due to India’s startup boom, there have been more alternatives for startup fundraising. Let’s discuss the Different Stages of Startup Funding.
With many funding alternatives accessible to startups, entrepreneurs may occasionally feel overwhelmed and confused about the best source for their business. At this point, the startup’s operational state and the funding source must correspond. A thorough understanding of the various financing stages enables founders to determine where their firm is in each stage and which possible investors can advance it.
With many funding alternatives accessible to startups, entrepreneurs may occasionally feel overwhelmed and confused about the best source for their business.
It would be easier for entrepreneurs to appreciate different funding sources and assess business chances if they knew the differences between these startup financings.
At each career path point, entrepreneurs may scale their firms by raising money from suitable sources. But first, let’s learn a bit more Different Stages of Startup Funding.
What is Fundraising?
Fundraising is the process of locating and acquiring voluntary financial donations by contacting people, businesses, nonprofit organisations, or governmental bodies. Although fundraising is actually done to generate money for nonprofit organisations, the term is also used to describe finding and contacting investors or other sources of financing for for-profit businesses.
Different Stages of Startup Funding
Seed Money: Conceptualisation
This is the initial phase of startup fundraising when founders are starting their businesses. Founders are currently working to make their dream a reality. As a result, there are few, primarily unofficial funding sources available. The most typical pre-seed fundraising for startup are self-funding, financial support from friends and family, and business presenting events.
Since there are no external restrictions or control dilutions, most founders use their savings to kickstart their firms. To raise money, founders also use their network of friends and relatives.
Entrepreneurs with exceptional business ideas also participate in business pitching competitions where the host institutions or organisations offer prizes, subsidies, or other financial advantages.
Seed Money: Verification
Like sowing a seed, the financing obtained during the seed stage aids the seed’s development into a tree. Investors anticipate receiving some equity for their money during the first equity funding phase. In this phase, the founders confirm the potential market demand for their good or service and carry out a proof of concept (POC). The creators can conduct market research, bring on mentors, and assemble a founding team thanks to seed capital.
Incubators, seminars, seed funding, and crowdfunding websites are frequent sources. Organisations like incubators and accelerators help entrepreneurs create their firms by giving them the fundamental components. This includes resources like money, real estate, utilities, and legal counsel.
Additionally, entrepreneurs approach angel investors, who make equity-based investments in high-potential firms. Furthermore, crowdfunding websites exist where business owners can solicit contributions from a significant number of people.
Series a Investment: Early Success
The post-market launch phase is when clients can purchase a startup’s goods or services. Key performance metrics, including client base, revenue, and app downloads, among many others, are essential to investors funding at this stage. The venture capital (VC) financing cycle starts at the Series A stage. The firm uses the money it raises at this point to grow its user base, provide new products, and broaden its geographic reach.
Super angel investors and VC firms are the most frequent funding sources. VCs oversee expert investment portfolios and invest only in fast-growing firms. In exchange for their funding, VCs receive stock and actively participate in the startup’s mentoring, management, and development. Although they also take part in this funding round, angel investors have less of an impact than venture capitalists.
Do you aware of the Must Read Topic: How to Find Investors and Raise Capital for Your Startup Business?
Scaling With Series B, C, And D Funding
Startups benefit from a quick pace of market growth, a source of income, and market expansion at this time. The purpose of a series of funding sessions is to grow the firm. Startups use financing from venture capital or private equity companies to map the course for development and expansion.
A pool of VCs or VCs with more significant ticket sizes are options for raising capital by founders. Some venture capital and investment companies have recently started supporting fast-growing startups for Series C, D, and beyond, although private equity firms generally do not for startups.
Exit Options Beyond Series Funding
The following phases reflect exit choices once the startup has passed the funding rounds. This covers alternatives such as share sales or buybacks, IPOs, mergers & acquisitions, and stock sales.
All startups have the same goal in mind: to go public. To become an IPO is to achieve the highest level of success. Only startups with a track record of financial success and expansion are eligible to sell stock to the public and list on the stock exchange.
Founders may purchase or be purchased by another company in addition to pursuing an IPO. Additionally, they might sell the startup or their stock to another business, venture investors, or private equity organisations. To restore control of their business, founders may purchase their shares back from shareholders.
The Final Verdict
Founders will be better able to appreciate different funding sources and assess business chances if they know the differences between these Different Stages of Startup Funding. At each stage of their business venture, entrepreneurs can efficiently scale their enterprises by raising money from suitable sources. You can get in touch with Vakilsearch if you wish to raise funds seamlessly for your startup. We will help you with creating a pitch for the same as well.