All start-ups, irrespective of the nature and size of operations, need funds to convert their innovative ideas into reality. Most of the businesses generally fail due to their inability to raise sufficient funds. After all, you need some capital or money to prop your business up at each stage. In case you are novice in the business world and have no idea about how to secure funds, then you must make yourself familiar with these different rounds/ stages first.
An entrepreneur should ascertain how much amount he/she could bootstrap in the business. Assess all of your savings and investments kept in multiple accounts and approach your friends and family. This stage involves fewer complexities and documentation and even you can get this investment at a cheaper rate from the lender. Self-funding is apt if your startup requires a little investment earlier.
Seed-capital (also known as seed funding) is an investment made at the preliminary stage of the startup. This initial funding helps the business in identifying and creating perfect direction for their startup. Funds raised at this stage are utilized for market research and developing a new product or service to offer. Most of the budding entrepreneurs raise this capital from family-friends and mentors, while some take up loans in exchange for common stock.
Range– Seed capital is usually between US$ 500,000 and US$ 2 million, but it may be more or less, depending on the company.
The typical valuation for a company raising a seed round is between US$ 3 million and US$ 6 million.
When the company’s final products or services reach the market, venture capital funding comes into the picture. Regardless of the products’ profitability, every business considers using this stage that further involves multiple rounds of funding:
Once a startup makes it through the seed stage and they have some kind of traction —whether in terms of revenue, views, users or whatever other KPI (key performance indicator) they’ve set for themselves — to raise a Series A round to help lift them to the next level.
At this stage, startups have formulated a specific plan for developing business model and increase their revenue.
Range: Series A funding is usually between US$2 million to US$10 million. The valuation for a company raising Series A round is US$ 10 million to US$ 15 million.
When a start-up is up for Series B funding, it portrays that the product is marketed right and the customers are actually buying the product or service, as planned by the business. The big question here is – Can you scale this product? Can you go from 1000 customers to 10,000 customers? How about 1 million? Well it could become easier to achieve this milestone with series B investment. Series B funding not only gain more customers for the business, but also grow the team by hiring competitive staff so that the business can serve that growing customer base.
Range– For Series B, start-up raises between US$ 10 million to US$ 20 million. Valuation of the company lies between US$ 30 million to US$ 60 million.
A startup can receive as many rounds of funding as possible, there is no certain restriction on it. But the more the investment rounds, the more release of the business equity. During Series C funding, founders and investors are quite cautious about investment in this round. But the more the investment rounds, the more release of the business equity.
Companies that make it to the Series C stage of funding are doing very well and are ready to develop more products and services, expand to new markets, acquire other businesses.
Series C funding typically comes from venture capital firms that invest in late-stage startups, private equity firms, banks, and even hedge funds.
Range– Series C round typically raise an average of US$ 26 million. Companies can expect a valuation between US$ 100 million to US$ 120 million. However, it could be possible that companies get much more than that, especially with the recent explosion of “unicorns”.
IPO (Initial Public Offering)
When a company decides to raise funds from the public including institutional investors as well as individuals, by selling its shares, it is known as an IPO (Initial Public Offering).
IPO is commonly known as ‘going public’ because the general public now wants to invest in your company by buying shares. It’s not an obligation for the founders to disclose their financial statements to the public if the business is going to the primary market for IPO. There are many other guidelines issued by the government of a particular country to raise funds from public. This kind of funding involves huge amount of investment that helps the business to grow and diversify in the areas of choice.
For taking your startup to the next level, you should know which stage of funding you want to go for, for what purpose. Such decisions made at the right time can be a boon for your business.
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