Every business needs investment at several stages of its lifecycle. It helps keep the company afloat and to build a business budget to help keep the processes functioning. Investment is needed for the purchase of assets and different kinds of machinery and technology that help the business produce or retail their goods and services in the market.
Some funding is also required for everyday working capital and for payables. When it’s a startup, it is hard to come across funding as there are fewer potential investors and with tough lending terms by banks, startup funding stages are hard for entrepreneurs to meet and get through.
Startups with even the most diligent business plans and ideas face challenges in acquiring the funding they are aiming to achieve. But with the right understanding of the funding pyramid and the kinds of investors one can approach, startups may find the right path to venture to find funding.
Various Fundings Stages
When a startup is formulated, there are usually 2 or more people involved. In rare cases, a single person may be the sole proprietor of the startup. The more the people involved, there is higher the chance for startup fundraising internally for the benefit of a startup.
Every startup needs financing at every single stage ever since the conception of the business. For each stage, a startup must know and understand what level of funding and which kind of funding they should be looking at.
This helps them in narrowing down the stages of Venture Capital Financing and helps them by identifying the right people to approach for funding. Understanding the various startup funding stages and how much funding is approximately needed to push the startup to the next stage is also very crucial.
Below are some of the primary types of funding for startups:
This is the beginning of the startup where the business is formulated and the idea begins to take shape. At this stage, the investors are primarily the partners and their friends and families who shell out the initial investment to kick start the business.
The seed funding is the investment that is primarily used to buy equipment, infrastructure, and all the necessary things that help the business get started. This is usually acquired from seed investors, banks, incubators, etc.
Angel Funding/ Venture Capitalists
Angel Investors are those who can identify the right businesses and invest in them so that the business can expand and improve their functionality. It is one of the stages of Venture Capital-backed funding provided to young and upcoming businesses so that they can push their business to profit-making stages. At this stage, the company is already making good margins.
Series A, B, and C Funding
This is the stage where startups need funding to make the company large enough to do business globally or to increase the size of their production units. The Series A round is the first set of investments that go in at this stage and is followed by Series B, C, etc which happens more rarely. This set of funding can be acquired from bank loans, Angel Investors, Venture Capitalists, etc.
IPO (Initial Public Offering)
This is the final stage where the company is now going public and is offering its shares to the people so that they can acquire a large size of investment which can be used to diversify the business portfolio.