Stages of Startup Funding: Pre Seed
Stages of a Startup: The pre-seed stage is the initial funding or as we like to call it the genesis fund. In this stage, the goal is to take an idea or concept and turn it into a tangible business. At this stage, the business is not expected to have a market-ready product or service. Startups will usually opt to secure pre-seed funding by presenting a pitch deck. The investment or pre=seed fund is usually granted with specific objectives. Once the agreed milestones are achieved with the pre-seed grant, the next stage of startup funding will start.
In essence, this stage is usually funded by either the entrepreneur themselves or friends and family.
During this part of the startup funding process, the personal council or board of advisors are selected.
During the selection, it should be kept in mind that other startup founders and business owners can be some of the most valuable allies since they have learned from their mistakes and can offer tips and advice from experience.
Also, any necessary partnership agreements, copyrights, and other legalities are sorted out at this stage to save the firm from facing problems later on.
There are two steps that need to be completed during the pre-seed stage:
- Plant your seed: This is the most difficult and also the most rewarding part of the entrepreneurship. It is the stage where something that existed only as a plan in the brain becomes a real tangible thing. The investors at this stage want to see some example, prototypes, mock-ups, plans, specs of the business and its products.
- Ground your concept in reality: The venture capitalists or angel investors look for the company’s unit economics, revenue and cost associated with the given business model on the basis of per-unit or per-product. It is necessary to show constant, steady, continued growth in the startup funding stages because the venture capitalists or angel investors won’t be interested in funding if the business is stagnant.
Note: At this stage, investors are not looking for a profitable product/service.
Stages of Startup Funding: Seed Capital
Seed round makes up the second stage of startup funding. Commonly, the investors of the seed round tend to be angels, early-stage VCs, and startup accelerators. The focus during the seed capital stage is to orient the company in the broader marketplace and develop a deeper understanding regarding the users and what resonates with them. Since it’s not all about the money it is important to make sure that the users are happy. If the users will like the product and service they will be happy and it will lead them to invest in the product.
A key part of this stage is to develop further and deeper traction in the target market. The growth and traction are important because they prove the viability of the idea and product at the outset.
Note: the startup is not expected to be profitable at this stage. However, the viability of the product/ service must be proven.
Sometimes seed capital can be limited and it isn’t enough for the scalability of the business. During this stage, necessary partners like development companies, designers, creative agencies, and potentially public relations, and market research firms are found.
Stages of Startup Funding: Angel Investor Funding
Seed capital will set you up in the right direction but to grow the business it is often necessary for the entrepreneur to get help from wealthy individuals outside their friends and family. Angel investors are wealthy individuals that invest money or equity financing in the startup stages of small businesses. They provide private equity for small businesses that need money to continue to grow. The business model needs to be proven to be able to get angels onboard. Angles are usually broken down broadly into two categories: accredited and non-accredited angel investors. Accredited angel investors are individuals that have a minimum of one million US dollars and usually have an upward income of 250,000. Non-accredited is everyone else.
Money raised through an angel round is substantial, hence the pitch should be well rehearsed and flawless.
Stages of Startup Funding: Series A Series B
Series A and Series B, these rounds are reserved for more mature setups and since you will be dealing with massive investments this round is usually dominated by venture capitalists. The company should be in the distribution of their products or services. This sort of financing is taken up to offset negative cash flow. During Series A stage, one works with the venture capitalists to refine and improve the original concepts, grow the team, find partners, and establish solid unit economic principles. This is the time when plans are set for further growth and success, the business is optimized, any financial issues or mistakes are sorted out, and new markets and demographics are approached.
At this point, the main target audience should begin to recognize the brand. The core group of influencers begin to discover and spread the word about the company and the product’s position in the market should be improved.
The goal of this stage is to position the company for future growth and get prepared for expansion in the next stages.
During the Series B stage, the company and products should be well established and the focus should be on internally expanding the team and externally by growing globally and potentially obtaining complementary or competing companies and technology. By this stage there should be a growth in the foundation of influencers, new members should be added to the team, and partners should be found.
An increase in funds is taken from established sources like banks, private equity firms, and larger venture capital companies. Further improvements are made and broader advertising campaigns are launched for more extensive reach.
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Stages of Startup Funding: Series C Rounds till IPO
Series C rounds are raised when a setup wants to undertake a large endeavor. The purpose of the fund could be to dramatically increase in-house resources, acquire other startups, or expanding to new markets. During the Series C stage, the company becomes fully mature. At this stage, the business model is working the user base is expanding. The main difference between Series C as compared to the other rounds is the amount being invested. Also, at this point, private equity firms and investment banks are the lead investors with the participation of large venture capital firms.
Series D-Z, technically, there is no limit to the amount of Series rounds.
After this stage, the outcome tends to be an IPO. Once the company has reached the IPO stage it becomes public and gets listed on the stock exchange. After this stage, there are a few things that the entrepreneur can do. They can go on to launching more products, expanding their products to new regions, or become an angel investor themselves. By this point that seed you planted has become a full grown tree.
If you are planning on planting a seed we have helped over 600+ startups, consult with us through this link free consultation.
