A start-up is a business idea that demands time, discipline, dedication, and most importantly funding. Regardless of the stage of your start-up, you need funds to take-off and/or keep the momentum going. Understanding the different needs at each phase of funding will foster the confidence required to engage investors. Some of the sources of funds available to start-ups include personal funds, friends & family, loans, venture capitalists, angel investors, and partner financing to mention a few.
Over time, a business’ customer base grows and expansion may be necessary. This is another stage where most successful start-ups will seek out more funding to open up the business and create opportunities for expansion.
Below are several phases of funding in start-Ups :
- The Seed Round:
The Seed Financing phase is the concept stage where the business idea is tested for viability. Small funds which mostly come from savings or friends & family are required for feasibility, prototypes, market evaluation etc. External investors are not usually in this arena because the risk is high at this stage and investors are wary.
- Series A Round:
As with the previous round, investment at this stage is still considered very risky. Angel investors are usually interested at this phase usually for shares in return. This is where the foundation of the business is established. A detailed business plan is developed with a legal entity that defines the boundaries of the business. Regulations are considered, licenses are obtained and a lot of work is put into the distribution and marketing framework along the supply chain. A lot more funding is required at this stage.
- Series B Round:
Private equity investors and Venture capitalists are usually interested at this stage. This is where production starts and sales begin. Employees are engaged and product distribution commences. Sufficient working capital is required for a smooth operation. The risks are lower than before and the business is higher in valuation.
- Series C Round:
The fund required at this stage is for rapid growth. It is the expansion phase where sales volume is profitable and there are plans to develop new products/services, increase market shares, or even acquire competitors.
Financing is strategic to any business’ success but it can turn into a full-time engagement if not careful. Your business is unique and no ideal funding solution is right for everyone. Thus, think about where your business is and what you are comfortable doing. When in doubt, talk to a financial advisor.