STARTUP FUNDING STAGES
Before raising money for their startup funding, one must know what funding could look like throughout its lifespan.
The business may go through multiple funding stages because it evolves and grows, including the following steps:
- Pre-seed funding: Initial capital covering expenses previous to formal seed funding. It frequently comes from various sources such as personal savings, friends, and family, without giving up equity in return.
- Seed funding: The first formal round of funding that predominantly supports costs related to market research, recruiting staff, as well as developing products or services.
- Series A: The second round of funding, usually is reserved for when the company has a strong business model as well as demonstrated progress and growth but still requires modest revenue.
- Series B: Funding is generally supplied when the company is well established and progressed past the development stage with a strong user base. Investments at this point are made to scale up the business quickly and effectively.
- Series C: Offered at the time the business has tens of millions of dollars in possible revenue that can further lead to growth through different product launches, acquisitions, as well as multiple kinds of market expansion.
Obtaining seed funding is immensely challenging, let alone progressing to series A, B, and C. To navigate the financing process effectively, you must understand the different types of capital.
DIFFERENT TYPES OF STARTUP FUNDING
Before asking for funding, to avail of a business loan in Pune, it’s important to know the various kinds and how to use them.
“Raising startup capital is considered more of a science than an art,” says Harvard Business School Senior Lecturer Jeffery Bussgang in the online course teaching Launching Tech Ventures. “There’s a well-explained checklist that investors are looking for—and such founders require to be aware of—to achieve more predictable outcomes during the process of fundraising.”
Here’s an overview of the general types of funding that startups can receive.
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Venture Capital
A venture capital (VC) firm supports and assists promising startups gain traction in return for equity. These firms usually play active roles in the companies they back to assisting them to prosper and succeed—offering capital, expertise, mentorship, as well as industry connections.
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Bootstrapping
The various forms of business financing are bootstrapping, such as the income directly correlating with the company’s future success. This kind of method limits the salary—as well as the co-founders’ and staff’s—to the amount which is generated through customer revenue.
Bootstrapping isn’t considered for everyone. Since only 40 percent of startups are considerably profitable. This could mean that they and their employees don’t get paid consistently. If they plan to finance the company using this smart method, make sure they have sufficient savings to mitigate risk
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Friends and Family
A common way to obtain pre-seed and seed funding is through multiple friends and family. Approximately 10 percent of entrepreneurs receive this type of support, and it’s a good way to obtain financing quickly and easily.
Family and friends generally have lower expectations for returning their investment and are likelier to let them run the business without pressuring for results or updates.
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Angel Investors
Funding can eventually come from significant angel investors—wealthy individuals who wisely invest their own money. For instance, if the startup promotes a cause an investor believes in, they perhaps finance it for emotional reasons without expecting too much in return, even if it comes with increased risk.
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Incubators and Accelerators
Incubators and accelerators are infamously similar in that they’re targeted and designed to assist startups grow, prosper, and succeed.
- Startup accelerators enable them to learn, receive guidance and promising mentorship, along with access to resources that help the business in its early stages.
- Startup incubators assist one in developing and refining ideas for their potential startup.