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Startup Funding: Know About The Stages Of Startup Funding

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Establishing a startup is a herculean task, right? Regardless of the nature and magnitude, each startup needs funds for the conversion of their innovative thoughts into materiality. The reason behind the failing of organizations is mostly because of incompetence of elevating the sufficient funds. 

So, as a founder of a startup, one must develop their focus on building their product, attracting funds to your business, and hiring great and fresh talent. And for this,  at every stage, you need tons of capital to keep your business running.

But as a newcomer, cumulating the initial capital feels like an impossible task. Some go for personal/family/friends capital and some others make their way to venture capital. 

There are numerous stages of startup funding like pre-seed funding, and seed funding then comes to Series A, B, C, and so on. A startup must be dedicated to the funding rounds from which they will have to go through, which are generally based on the development and maturity of the company. 

Let’s get familiar with the stages of startup funding, which will surely assist you in building your startup.

Pre-seed Funding or Self Funding

Pre-seed is a prime stage for a startup. In this, a businessman should be aware of his own resources that can be used at this stage of his startup and must know how much he can come up with.

He/she must be aware of his/her own resources and has to estimate all of his/her investments, and savings and also contact their family and friends and also from some of the early stage venture funds. 

You will face fewer complexities and challenges in this stage as compared to others. It will help your startup to get a boost even at a lower rate. 

This stage is also known as Bootstrapping, as you have to use your deep pockets in order to scale your startup.

Seed Funding

Now, Seed funding is the actual stage, where you have to plant the seed of your startup. The earliest funding stage for a startup is in which funding can come from angel investors, family, and friends.

Most startups fail to develop because they have consumed all of the capital of the pre-seed stage. This makes seed funding critical to run the business. 

Mark Suster, An Entrepreneur turned investor said, ‘the only biggest blunder made by the founders is to hold on in fundraising until they have a deficient amount of cash left in their bank.’. 

A startup’s main goal is to raise seed stage investment because this is the time when the product is developing and growing, as well as the go-to-market plan.

The startup’s fundraising in the seed funding stage must be between $50,000- $3 million. This will make it a promising startup. 

If the startup’s valuation is between $3-$6 million then it will be eligible for seed funding. 

Venture Funding

After a successful seed funding, when the final products or services of the company reach the market then the time of venture capital funding starts.

Without considering the profit from the products, every startup contemplates using this stage which includes further rounds and those are as follows- 

Series A Round Funding

This is the supreme occasion that allows startups to scale themselves among distinctive markets. One must have to make a master plan for generating long-term profit. This stage will let you learn real fundraising and start to make connections with angel investors and VCs. 

Series A allows funders to get in early with a startup that they truly trust in. It is a mutual relationship that will be advantageous to both the company and the future stockholders. 

With a favorable valuation of $10- $30 million, startups can be able to raise approx. $15 million during series A round funding.

Series B Round Funding

Those who have successfully gone through the series A funding round, have already built a significant user base alongside a balanced stream of revenue. The meaning of making thought on series B funding implies the strength and success of the company.

The company announces that it is searching for series B funding using the value from series A. The company is now selling equity at the established valuation, and investors are allowed to make offers based on this valuation.

Normally the fundraising of series B is $7 to $10 million and most of them are going to be valued between $30 to $60 million. 

Series C Round Funding

Series C funding indicates the crystal clear path of success and growth for the company and they have proven themselves an enterprise but need more capital for further expansion and advancement in their products and services.

It will be beneficial for the company to first contact the angel investors and the existing investors of series A and B rounds while trying to raise a series C funding round. 

At this stage, one can say that the startup no longer remains a startup but it has reached a height of glorious success which can be called a victorious business.

Good businesses that is valued up to $100 to $120 million and will be able to raise almost $50 million in series C.

Series D round and after rounds

This stage is mainly about coming up with something really special and unique. Normally, very few companies need to go to this stage. If the company hasn’t gone public yet, then it will go to series D and beyond.

Also, when a startup was unable to achieve the required and preferred landmark through series C, then it will turn its way toward Series D and beyond if needed.

If the startup is able to value up to $200 to $300 million then it can be competent to raise almost $100M.

IPO- Initial Public Offering

The process of offering corporate shares for the first time to the general public for selling is known as IPO. 

This process is often used by growing startups, to further generate funds. Established organizations use this, for allowing startup owners to withdraw some or all of their ownership by vending their shares to the general public. 

Conclusion

A better understanding of the stages of startup funding will eventually prove to be profitable and productive for your startup. The comprehensive knowledge of different stages of startup funding help in cultivating an advantageous product that will be competent to profit the startup as well as the customers.

FAQs

What is the use of a startup funding guide?

It can be used to understand the stages of funding rounds that will be necessary for a startup to grow.

How many rounds are necessary for establishing a strong company?

It completely depends on the founder’s own resources and strategy made by them.

Which is the 1st round of startup funding?

pre-seed funding.

What is an IPO?

The process of offering corporate shares for the first time to the general public for selling is known as IPO.

What is seed funding?

earliest funding stage for a startup in which funding can come from angel investors, family, and friends.

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