In today’s world we need money for everything be it to meet our daily expenses or to begin an entrepreneurial journey. Every entrepreneur needs money to turn its revolutionary ideas into a business reality, regardless of the nature and scale of operations. People often think that funding is needed only at the beginning phase of the startup, which is far from the truth. In this article, we will discuss what is startup funding, requirements of funding and what are the different stages of startup funding.
Every business, no matter how small or big, needs funding for various things. A lot of enterprises typically fail because they are unable to raise enough money to smoothly run the business. This is where startup funding comes in.
Startup funding is basically the procedure of determining the best financial resources to support the commercialization of your idea. Resources would be needed to fund the developmental activities, such as product development, expansion and more. for the various stages of growth that your startup would encounter.
A business has various stages throughout its life cycle, as it grows the need for money or funding keeps changing along with the reason for funding. An entrepreneur must be clear about their goals when raising money and the stage involved in it. Founders should have a thorough financial and business plan in place before contacting investors. The following are a few reasons why entrepreneurs opt for startup fundings, it is not necessary that these might be the only reasons.
There are various stages in the development of a company. As and when the stages advance, so does the need for funding increases. To attain funding for your startup, you should first know the stages involved. The following are the various stages of a startup and funding would be required in the particular stage:
This is the first stage of raising money for a startup. It is the stage when the company is just getting going. Entrepreneurs at this stage are just working on their idea, checking the feasibility and how to make their dream a reality. In this stage, since this is the basic step for any entrepreneur and the business hasn’t been set up yet, no investor would be ready to invest in the business. This stage typically involves bootstrapping where an entrepreneur has to fend for themselves or with the help of relatives and friends. For a corporation to fully establish its foundation, years may pass. Or, if a company is able to establish itself, things can move along very quickly.
Seed capital is an investment made in a startup during its early stages. It is the first stage of formally raising equity. It is the primary source of funding for the business. The startup costs are covered by this fund. The money raised at this point is utilised to do a thorough market research of customer needs, tastes, and preferences in order to create a product or service that meets those needs, team expansion, product development and more. In this phase, the founders confirm the potential market demand for their goods or services and carry out a proof of concept.
Quite similar to sowing a plantation seed, the funds that are obtained during this stage aids in the seed's (business’) development into a tree. Investors anticipate receiving some equity in return for their money during the first equity funding stage.
Series funding is divided into various categories on the bases of the current stage of the company. The following are the categories:
Once a company has used its seed money to develop a product and build a client base, it might be time for a Series A funding round. This money is mostly used to strengthen the brand's credibility, expand the company's product line, draw in new customers, enter new markets, and develop a long-term growth strategy.
Company development and ways to achieve the next stage of growth are the main reasons to opt for Series B funding. When a company depends on Series B financing, it demonstrates that the products and services are well advertised and that the buyers are actually making the predetermined purchases of the good or service. A business can use the money collected from this type of fundraising to finance employee salaries, hire more employees, upgrade infrastructure, and increase sales, marketing, technology development, and customer service.
Series C, D and E
These funds are for businesses that are already growing and are frequently looking to expand internationally. There is no set limit on the number of rounds of funding a firm can get. Few businesses opt for Series D or E as well after Series C. The ones who do, frequently want additional funds to accomplish their objectives or are seeking a final inflow of capital before an IPO. Finding investors may be simpler at this point if they believe the firm will prosper.
An initial public offering (IPO) is when a startup decides to sell its shares to the general public, composed of both institutional investors and individuals, in order to raise money (IPO). The final funding phase is now. In this case, the company changes from being private to becoming public. The business is stable at this point and ready to sell shares to the general public. In essence, IPO aids in your growth and diversification in chosen fields.
Entrepreneurs and founders are under no obligation to choose an IPO. The choice to list or not to list a firm is entirely up to the corporation.
As a founder of a startup, one should be aware of the stages of fundraising for a startup and the goals they intend to pursue in order to advance their startup. Such choices that are taken at the proper moment can benefit their company greatly. At any point in their entrepreneurial journey, entrepreneurs can scale their startups thanks to the numerous startup fundraising stages. Through this scaling process, they may determine where their startup is and which possible investors would support their growth.