For a startup company to transform its idea into a successful business, it will generally have to find a Startup funding. But, at what exact moment on that road should you knock on your door? Who are the first investors that we should add to the adventure?
On many occasions, the entrepreneurial ecosystem tends to think that the rush is good. Before others get ahead, it is necessary to seek private financing to promote the newborn project in the shortest possible time. However, contrary to what many people think, this is not the best advice for entrepreneurs.
This may appear to be self-evident and basic, but it is not. Entrepreneurs frequently have unrealistic ideas of what cash can or should do, or they haven’t adequately assessed the realities of their personality or firm.
Obtaining funds for business expansion is not “a piece of cake.” Companies in the early stages of development, on the other hand, have a variety of startup funding choices. Some of the more recent opportunities include venture capital, angel financing, and crowdsourcing. Startup accelerator programs might also provide assistance.
There are different phases of investment in a Startup company that every entrepreneur should follow. In this article, we go on to summarize what they consist of:
THE ENTREPRENEURS THEMSELVES:
The first to invest in your company should be the founding team itself, this will not only give them more credibility with an investor, but it will also lead them to be much more committed to your project.
Self-funding a business includes utilizing your own money to put up the first capital to get it off the ground. Personal assets and income, as well as credit cards and personal loans, can all be utilized to self-fund your business. The founders’/owners’ own resources are the most prevalent source of finance for small firms.
FFF (FRIENDS, FAMILY, AND FOOLS):
The startup CEO often turns to family and friends to give the first shape to his business idea or build a prototype. In this phase, the business model is not yet fully defined and will still suffer different variations.
If you don’t have access to more traditional lenders, family loans may be able to assist you fund your firm. While these loans may have low (or free) interest rates, they can be costly if they start to interfere with your personal relationships. Putting the rules in writing can assist both parties set clear expectations and ensure that everyone understands and accepts the risks.
Startup Funding SECOND STAGE:
The investment made until then is used to have the finished product or service, establish the business model, and start billing. At this point, it is usually more common to find business angels willing to invest in a project.
Of course, prepare the metrics well. The startup trend continues to rise, but investors are more cautious than a few years ago and are asking for more data and results.
Business angels are affluent and wealthy individuals who invest their personal funds in early-stage start-up companies in exchange for an equity stake.
Within three to eight years, most angel investors anticipate seeing a return on their investment of two to 40 times their investment, and some will take an active position in the investee company. Others may want to become sleeping partners and merely offer your business with funds, while others may want to sit on your company’s board of directors or act as an advisor.
SEED CAPITAL INVESTMENT FUNDS:
At this point, the company is beginning to be interesting and attract the attention of investment funds in seed capital.
For a new or even established business, navigating between (Venture Investment Funds) VIFs and SCIFs in terms of access and processes can be difficult. Creative HQ can access the Seed Capital Investment Fund (SCIF) through the Angel network, which allows for a match of up to 500k of what the private sector has put in, and typically up to 250k for a first investment round. A match fund allows funds from other sources to be matched. For example, if you were able to raise $200k from Angel HQ and Angels, SCIF would match that with another $200k, giving you a total of $400,000.
Is it always a given that if you know how to navigate, you’ll be able to find a match? It’s a done agreement. The only way you wouldn’t obtain match financing would be if their coffers were depleted. In all other circumstances, if you submit an application that has gone through the necessary processes, such as Creative HQ and Angel HQ, and has been accepted as an investment, SCIF will match it.
GROWTH FINANCING ROUNDS (A, B, C, D…)
Generally, large venture capital funds participate in these rounds. Usually, in financing round A, smaller will be raised, and in the following ones, increasingly large amounts of millions will be raised.
After a company has established a track record (e.g., a large user base, consistent sales statistics, or another critical performance indicator), it may seek Series A capital to expand its user base and product offerings. There may be potential to expand the product into new markets.
Seed startups frequently have amazing ideas that attract a big number of eager users, but they are unsure how to monetize the business. Series A rounds typically raise between $2 million and $15 million, albeit due to high tech industry valuations, or unicorns, this figure has climbed on average. The typical Series A funding as of 2020 is $15.6 million.
Series B rounds are all about moving companies beyond the development stage and into the next level. Investors assist startup funding in reaching their goals by expanding their market reach. Companies that have completed seed and Series A investment rounds have already shown to investors that they are ready for larger-scale success. To meet these levels of demand, the company will require Series B cash to expand.
GROWTH CAPITAL INVESTMENT FUNDS:
This stage means that the company is billing very high amounts of money and that its valuation is really good. The time has come to look for investment funds that can contribute large amounts of money to strongly project the startup’s expansion since the company needs to scale sales as quickly as possible to get ahead of possible competitors that may have arisen.
The ultimate goal for investors is to achieve the desired success, which will benefit all who have opted for the company from the beginning. Defining the partners/investors well beforehand will be fundamental for developing the project or startup since the discrepancies both when establishing the success or sale of the company and its continuity will directly affect.
Examine your company objectively. If you deserve money, discover the correct kind of money and keep going until you receive it. If you don’t think you deserve financing, devise a Plan B to get to the point where you do. Reduce the danger for the other party. Demonstrate that you’re chasing the opportunity because it’s desirable and the timing is perfect, not because you’re too far into a losing wager.
These are the questions you should ask yourself before looking for startup funding.