Every startup, irrespective of the nature and size of operations, requires funds to convert its innovative ideas into reality. Most of the businesses generally fail because of their inability to raise sufficient funds. After all, you need some money or capital to keep your business going at every stage. If you’re new to the world of startups and have no idea about raising funds, then you need to make yourself familiar with these different stages first.
An entrepreneur should ascertain how much amount he/she can contribute from his/her own pockets. Assess all of your investments and savings kept in multiple accounts, and approach your friends and family. This stage involves fewer complexities and documentation, and even your friends and family maybe ready to lend at a cheaper rate. Self-funding or bootstrapping is apt if your startup requires a little investment earlier.
Seed-capital is an investment made at the preliminary stage of the startup. This helps the business in identifying and creating a perfect direction for their startup. Funds raised at this stage are used for knowing the customers’ demands, preferences, and tastes, and then formulating a product or service accordingly. Most of the budding entrepreneurs raise this capital from friends, mentors, and family, while some take up loans in exchange for common stock.
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:
Series A investment, being the very first round of funding, doesn’t ask for external funding. At this stage, startups have formulated a specific plan for their product or service. It is mostly used for marketing and improving your brand credibility, tapping new markets and helping the business grow.
When a business relies on Series B investment, it portrays that the product is marketed right, and the customers are actually buying the product or service, as decided earlier. Such funding helps a business in paying salaries, hiring more staff, improving the infrastructure and establishing it as a global player.
A startup can receive as many rounds of investment as possible, there is no certain restriction on it. However, during Series C investment, the owners, as well as the investors, are pretty cautious about funding this round. The more the investment rounds, the more release of the business’ equity.
IPO (Initial Public Offering)
When a startup 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 related to ‘going public’ as 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 before public if they go for an IPO. But the company must submit information related to financial statements, the purpose of raising funds, etc. to the SEBI. IPO basically helps you grow and diversify in 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 boon for your business.