When you wish to start your own business, one of the main things that come to your mind is money, because it’s the force that drives your startup. If you have some savings, you can initially start the company by doing some basic things.
But once your company starts growing and the demands increases, sure you need to expand it. Then again comes the issues of money. But, by that time, your own money may get depleted and you might think about alternate ways to keep your startup alive and running. Like this, the Startup funding stages continues as the demands of your business increase.
So, It’s really essential to know about the stages of startup funding.
Lets now dive into the funding stages
Don’t worry about the complex terms like IPO- initial public offering, Venture capital, Angel investors, etc. We have made it so simple here.
1. Self Funding or Pre Seed
The first and foremost stage that you start building your startup is by self funding, which is nothing but the money that you have in your savings.
In most cases, it helps you to fulfill the basic things related to your company like documentation, hosting, setting up the office space, etc.
Depending on the money you have, you can plan and use them to buy some basic equipment or software’s that are required for your startup.
At the same time, in this stage, you will also think about other ways to raise money for the business needs by approaching your relatives or friends about funding your startup to fasten the process of setting up.
There comes the second stage.
2. Seed Capital Investment
You can just understand this startup funding stage by looking at the name itself. Seed capital means the very first investment or funding made on your business.
In this stage, you will explain your ideas, your commitment, and the model your startup can earn money to your relatives or friends and impress them for raising a fund.
Incase if your idea is innovative and potential enough for making a profit, you can even attract or approach the Angle investors or early stage venture funds to support your startup’s financial pillar in the seed investments stage itself or even you can raise funds by crowd funding.
With respect to their funding, you need to offer them a share in your business.
By the funds raised in this way, you can start your business and use it to understand the workflow or to test the things and do some research, formulations, and finally, a product or service.
3. Series A – The Stage of Investors Starts
Your product or service might have already released in to the market and was generating initial revenues by this stage and the company has a huge need to expand and thus the money.
This is the stage that really matters for any startup as many fail here, not by their company’s performance but by the inability to raise funds.
Most of the funding comes from the early venture capitalists and Angel investors in this stage.
Venture capitals are just like firms that have huge money from various capital investors, who decide to fund and invest in other companies and make a profit.
Coming to the Angle investors, they are usually individuals who like to invest in new companies to make profits in large quantities.
Sometimes, several angle investors even have their own networks or groups and can be even useful for mentoring and get the things of your startup into a flow with their influence.
So, you need to prepare for building your contacts with Angel investors, venture capitalists, and impress them by the plan and your strategies to get their investments.
Also, in this stage, you must do a perfect planning for the further startup funding stages, where you need to look out for large venture capitalists or groups.
4. Series B
This is the stage where your service or product has a good outreach and decent number of customers, generating steady revenue.
It is the correct time for expanding the market.
In the series B stage, funding occurs from large venture capitalists and other investors, usually in huge amounts that meet the needs of your business. It will be especially useful for expanding the product to reach new markets.
5. Series C
If your product outreach is successful in the new markets and is adding to the revenue of the company. You really achieved it and made the path of success free with very few difficulties.
Seeing this, investors will be incredibly happy and fund much more to take the company to reach its new heights.
Several successful startups use this funding to expand the business by launching new products or even use it to reach new markets.
Investments from new sources like Equity firms, banks, and new investors too may come to fund in this stage.
6. Series D
Series D is an additional one in the startup funding stages, where the requirement of this stage might be needed only on special occasions, especially while new acquisitions, or when the expected goal is not reached or such special situations, but not all the time.
For most of the startups, they have already reached great heights by the time they enter this startup funding stage and are really sustainable enough for most of their needs.
Almost all the investors will be ready to invest in this stage of funding.
But in some situations where companies doesn’t meet their funding target and don’t want to go public, even go for additional stage Series E to raise additional funds.
7. Initial Public Offering (IPO) or Going Public
The IPO or Initial Public Offering is about offering the shares of the company to the public for raising funds or to make a profit.
Some startups use this process of raising funds mainly to meet the requirements and to improve the growth. It is also a method used by several owners of the company to exit out of their ownerships
To be frank, once you enter a series C or D stage of funding, your company is not at a startup but a successful business.