Stages of Funding a Startup

A startup is a project aimed at scaling a business model. If we talk from the statistical point of view, India has made a presence in the top 3 startup ecosystems globally, after the US and the UK.

The startup trend is prevalent these days, where college graduates try to delve into this space. Several employees working in corporations also try to turn their ideas into reality. However, irrespective of the nature and the size of operations, a startup requires some funds to convert its fragile idea into a living, breathing entity.

Be it a startup or a business, money, and ideas will always remain a crucial aspect for your startup. If you are unaware of the stages of funding for a startup, you have landed at the right place. This blog will take you through the financials, potential investors, and responsibilities in each funding stage to help you scale your startup.

Pre Seed Funding Stage

This is the first stage to acquire money for building your startup. This also refers to the period when a startup is planning to set its operations on-ground. It is also known as the bootstrapping stage, where the startup owners may use their own financial resources to scale the startup.

Friends and family often lend the money for the startup at this stage. This phase may also require the founders to do a second job or work overtime to sustain the additional income. The team size is very small at this point in time.

Essential Aspects of Pre Seed Funding Stage

This is the starting phase, and hence, not even considered as the initial grant phase. Startup owners use their financial resources along with their family and friends for a head start.

Seed Funding Stage

Just as the word ‘seed’ is analogous to laying the foundation of a tree, which, when fully grown, will reap the fruits (or results), seed funding is essential for a startup to nurture its roots in the ground. This is the stage to put your business strategies and hard work into action, similar to planting a tree.

This is a crucial growth stage where investors are taking a leap of faith in your startup for investments. In this stage, startups should provide equity to seed funding investors. The investments, in turn, are used for performing market research and analysis on the preferences of the customers.

Essential Aspects of Seed Funding Stage

This is the foundation stage to launch your product/service in the market. The investors are mostly friends, family, Angel Investors, and the money is raised through crowdfunding.

Series A Funding Stage

This is the first round of the venture capital stage. At this moment, your product would have been developed with a customer base and a reliable income stream. This stage allows startups to scale their products in different markets.

Being an important stage, you must start building connections with Angel Investors and VCs. There is a popular 30-10-2 rule, which states that you must find 30 investors who are willing to invest in your business. Not all the investors would show interest in your proposal, select 10 out of those 30 investors, and ultimately focus on 2 who would be willing to pass on the funds to you.

Essential Aspects of Series A Funding Stage

This stage is your road to test the working business model and make the team scale in the future. The investors are primarily Accelerators, Super Angel Investors, and Venture Capitalists.

Series B Funding Stage

By this stage, your startup would have already set a good foundation for your product with a steady revenue generation from your customer base. This also fits in the sense of scalability around the idea and the model of business.

This stage involves the expansion of team members and the customer base of the business. Investors may also assist in market research in bringing the product that meets the customers’ demands closely and competing with the rival companies.

Essential Aspects of Series B Funding Stage

This stage is essential to scale your business and increase the market share of your product. The investors are mostly Venture Capitalists and late-stage Venture Capitalists.

Series C Funding Stage

This is the stage where your startup is in full growth. At this time, startups require more funding to build new products, cater to new markets, and acquire other startups. Investors know that the risk of failing at this stage is minimal, which leads to funds being poured into the startup easily.

By this time, your startup would have a hold of a strong customer base, a vision to expand, a strong team, and a steady revenue flow. This also opens the gates for new investors who invest in startups as leading investors.

Essential Aspects of Series C Funding Stage

This stage fuels the expansion of your startup, market share, and IPO. The investments come from banks, hedge funds, late-stage Venture Capitalists, and private equity firms.

Initial Public Offering (IPO)

This is the last stage of funding for a startup, which involves offering corporate shares to the public for the first time. IPO is often the choice of growing startups to generate funds. On the other hand, established organizations use it to allow startup owners to withdraw their ownership by selling the shares.

The company also distributes its stocks to the employees as an incentive. These stocks are often a lucrative opportunity for the existing employees and help recruit better talent.

Essential Aspects of IPO

This stage is to build a growth-oriented team and to develop corporate governance. The investments come from the general public when the stocks are listed on the exchanges.

Conclusion

These stages are the benchmark to identify where your startup stands in the market. The funding stages help the founders to scale their startup on the journey. The critical aspects listed here will help you identify the potential investors and the defining stage of your startup.