FUNDING STAGES
FUNDING STAGES FOR A STARTUP
1. ACCELERATOR
A startup accelerator, also known as a seed accelerator, is a business program that provides education, guidance, and funding to early-stage, growth-oriented businesses. Accelerators often accept startups for a set length of time and as part of a cohort. While accelerator programs can benefit businesses at any stage of development, the majority of them focus on pre-revenue companies.
Startup accelerators provide education, guidance, and funding to early-stage, growth-oriented businesses. Startups are accelerated for a set amount of time and as part of a cohort. The accelerator experience is a process of intensive, quick, and immersive education aimed at shortening the life cycle of creative businesses by compressing years of learning into only a few months.
2. PRE-SEED
This is when you start building your product or service prototype to see if your idea is viable, and it comes before the phases of venture finance. VCs are unlikely to grant capital in exchange for equity at this time, so you’ll have to rely on your resources and contacts to get your firm off the ground.
Many entrepreneurs seek advice from founders who have had comparable experiences at the pre-seed stage. With this guidance, you may start designing a winning business concept and a credible business strategy. This is also the time to finalize any collaboration agreements, copyright agreements, or other legal matters that are crucial to your success. These problems may become insurmountable in the future, and no investor will back a startup with unresolved legal issues. The startup founder, friends and family, as well as early-stage funds, are the most prevalent investors at this level (Micro VCs)
3. SEEDD
Your business now has some experience and can show that it has the potential to grow into a thriving enterprise. You’ll need a pitch deck now to show VCs that your idea is a good investment possibility. The majority of the little sums you raise in the seed stage are used for particular tasks such as market research, business plan development, management team formation, and product development. The idea is to raise enough money today to show prospective investors that you can scale and grow.
To help you portray credibility, many seed-stage VCs may pitch subsequent investment rounds at the same time. In addition, a representative from the venture capital firm is likely to join the board of directors to oversee operations and guarantee that everything goes according to plan. Because VCs are taking such a big risk at this time, this is likely the most expensive capital you can get in terms of the amount of stock you’ll have to give up to get the money. The startup owner, friends and family, angel investors, and early venture capital are the most prevalent investors at this stage.
4. SERIES A
The initial round of venture capital funding is usually referred to as Series A. At this point, your company should have finished its business strategy and created a pitch deck that focuses on product-market fit. You’re fine-tuning the product and building a customer base, ramping up marketing and advertising, and demonstrating a steady stream of revenue.
You must now fine-tune your product or service, expand your personnel, do extra research to support your launch, and raise the cash necessary to carry out your plan and attract new investors. You must have a plan that will yield long-term profitability in the Series A round. Regardless of how many enthusiastic fans you have, you must show how you plan to monetize your product in the long run.
Angel investors and traditional venture capital firms provide the majority of Series A investment. However, family offices and corporate venture capital firms are also viable funding options. To reduce the risk of a failed investment, these investors are looking for businesses with a good business strategy and leaders who can execute it. Accelerators, super angel investors, venture capitalists, and corporate venture capital funds are the most common investors at this level.
5. SERIES B
Your business is now ready to grow. Actual product manufacturing, marketing, and sales operations are supported by this stage of venture finance. You’ll almost certainly need a considerably higher capital commitment to expand than you did previously. Series B investment is not the same as Series A. Series B investors want to see actual performance and evidence of a commercially viable product or service to justify further financing, whereas Series A investors want to see the potential. Investors will be more confident in you and your team if you can demonstrate that you and your team can succeed on a broader scale.
Series B funding is provided by venture capitalists, corporate venture capitalists, and family offices that specialize in backing well-established firms. They’re giving you the money you need to develop your market and put together operational teams like marketing, sales, and customer service. You can use Series B capital to expand your operations, meet client demands, enter new markets, and compete more effectively. Venture capitalists, corporate venture capital funds, family offices, and late-stage venture capitalists are the most common investors at this point.
6. SERIES C
You’re on a growth path when you reach the Series C investment stage. You are now on a success scale, and more money will enable you to develop new products, expand into other markets, and perhaps buy other firms. It takes about 2-3 years to get to this stage on a fast track, where you’re generating exponential growth and steady profitability.
The firm must be well-established with a robust client base to attract Series C and future funding. You’ll also need a steady cash source, a track record of expansion, and an ambition to become global.
Investors are keen to invest in Series C and beyond since previous success means they are taking on less risk. Beyond traditional VC firms, hedge funds, investment banks, private equity firms, and others are interested in investing here.
7. GROWTH
The Series A, Series B, and Series C rounds, named for the class of preferred shares offered to investors each time, are common ways for growth-stage capital to be invested. Series A rounds can either be the seed investment round or the round that follows it.8. ANGEL INVESTORS
The term Angel investor is usually used to refer to rich, accredited individuals who have their own money in a startup or company in the early phases of development in exchange for equity in that business. Angel investors may lend their business experience to the company, but they are usually interested in receiving a share of the company’s equity in exchange for their investment.
Angel investors can be individuals who are familiar with the funding opportunity–for example, family members or friends–or they might be a group of angel investors pooling their resources to look for possible investment opportunities.
9. EARLY STAGE
The first three stages of a company’s development are funded through early-stage funding. There are three different types of funding:
- Seed capital (seed finance): Money is given to an entrepreneur to help them launch a firm.
- Start-up investment: Money is used to assist a company to develop items and begin promoting those products.
- Early-stage capital: Funds to assist, start and build a company’s manufacturing and sales operations.
Early-stage investors recognize that starting a firm takes time and continual support, therefore they anticipate making multiple investments in a single company as it grows.
Because there is more risk connected with new companies that have yet to establish a market presence, not all investors are willing to invest in them.
10. FOLLOW-ON/ FOLLOW-ONS
A follow-on investment is made after the initial investment has been made. The venture capital firm had previously committed to investing in the startup through an equity fund. In addition, the venture capital firm has fully funded the startup. However, the private equity firm may demand further funds as time passes. This is the point at which a follow-on or supplementary investment is made. The venture capital firm’s general partners will ask these investors for more money.
However, the company’s board of directors will have to demonstrate that it is deserving of additional findings, as no one wants to invest in a failed organization or idea. It’s worth noting that a venture capital firm acts as a go-between for existing investors and private equity firms.
11. STARTUP STUDIO (LAB)
A startup studio is a company that works to develop multiple different enterprises in a short period. Venture studios work on a company’s concept while also putting money into it. Typically, venture studios concentrate their efforts on launching new businesses. This implies that venture studios have a lot of experience starting new businesses and can use that knowledge to help their clients succeed.
Furthermore, due to the recurring nature of the company-building process, these businesses are great for swiftly producing product and service prototypes. Furthermore, because these firms often work on numerous startups at the same time, they can work on multiple projects at the same time. Finally, the venture studio business model allows for the use of the same infrastructure across several enterprises at the same time. This means that venture studios are effective in launching several businesses.