ABC Of Startup Funding1 Comment
Importance of Series A B C funding stages for Startups
“A journey of a thousand miles must begin with a single step”- Lao
A startup with a brilliant business idea has an aim to get its operations up and running. From meek beginnings, the company proves the stature of its products and services, slowly growing by overcoming several barriers thanks to the magnanimity of family, friends and the founder’s financial resources. Over the period, the company begins to grow on customer base, and the business begins to inflate its operations and goals. In this journey, the company has stood up through its competitors’ ranks to become highly valued, further opening new opportunities for future expansion that include new offices, employees and even an initial public offering (IPO).
“A ‘startup’ is a company that is confused about-
- What its product is?
- Who its customers are?
- How to make money?- Dave McClure”
Thus, if the premature stages of the hypothetical business explanation seem too good to be true, usually they are but in reality, they may differ. While there are fewer fortunate companies that develop according to the describe model (that too with little or zero outside help). On the opposite, there is a large percentage of successful startups have been involved in many efforts to escalate capital through different levels of external funding. These funding rounds allow the outside investors to invest in a developing company and exchange their cash with the company equity or maybe partial ownership. The funding round terms are Series A, Series B and Series C, which means the procedure of developing a business by outside investment.
Depending upon the industry and level of interest among the prospective investors, there are other kinds of funding rounds also available for startups. It’s common for startup funding to get engaged in seed funding or angel investment funding at the outset. For a business that decides to bootstrap or merely survive off on other generosity or own pocket capital, Series A, B and C are necessary ingredients for them.
How does funding works?
Firstly, it’s essential to identify the different participants. Foremost there are the individual hopes to gain funding for their company. It’s usual for a company to start with a seed round and then continue with A, B and then C. Then there are prospective investors, who wish for business to succeed because they support entrepreneurship and the founder’s vision, ultimately they hope to gain something back from their investment. Due to this reason almost all investments are done during one or another stage of development funding. The arrangement is made in such a way that the investor or investing company retains partial ownership of the company.
The analysts undertake a valuation of the company in question before any round of funding starts. From many different elements, valuations are derived including proven track record, market size, risk factors and management. This valuation before funding round gives an idea about the impact of these factors and help investors to take involvement decision as well as understand the reason behind the company’s need for new capital.
Different stages of Startup Funding
Pre-Seed Funding or Self-Funding
A new company comes early in the process that it is usually not included among the rounds of funding at all. The stage refers to the period in which a company’s founders are first getting their operations off the ground, termed as Pre-Seed Funding. Here the founders themselves act as funders, as well as close supporters, friend and family funds are involved.
At the primary stage of the startup seed-capital investment is made. At this stage raised funds are utilized for understanding the customers’ demands, tastes and preferences, and then accordingly formulating the product or service. Most of the budding entrepreneurs upraise the capital from their close ones, even some take up loans also.
Venture capital funding comes into the picture when the company’s final products or services reach the market. Anyway the product’s profitability, businesses use this stage for further involvement of multiple funding rounds:
- Series A: Series A investment doesn’t ask for external funding. At this stage, startups have formulated a specific plan for their product or service that can be used for improving brand credibility, marketing, and assisting the business to grow.
- Series B: Series B investment comes when the product is marketed right and sales begin. Such funding assists a business in recruiting more staff, improving infrastructure, salary payments and establishing it as a global player.
- Series C: Although a startup can get many investment rounds as possible, specifically there is no restriction on it. During Series C investment, owners and investors are a bit cautious about funding this round. Because, if more rounds of investment take place then there will be more release of the business equity.
IPO (Initial Public Offering)
When a startup plans to increase funds from the public including individuals and institutional investors by offering its shares, it is term as an IPO (Initial Public Offering). It is related to ‘going public’ for funds. By this, the general public can also get an opportunity to invest in your company by purchasing shares.
The Bottom Line
Understanding the difference between these rounds of raising capital will assist you to break startup news and analyze entrepreneurial prospects. With each case study company profiles may differ but usually have different risk profiles and maturity levels at each funding stage. However, seed investors and Series A, B, and C investors all assist ideas to come to accomplishment.
Categorised in: Startup Pitching
This post was written by skeegten