Startups are powered by more than just coffee and hard work. Every business needs funding, and this is certainly relevant for startups. If a startup gets the right early-stage funding, it might be able to hire a key person and bring in the resources needed.
If you’re new to the startup ecosystem and have no prior experience raising funding, you need first get familiar with these various types of fundings.
A startup founder should figure out how much money they can put up themselves. Examine all your savings and assets held in various accounts and speak with your friends and relatives. There are fewer complications and requirements at this level, or even your relatives and friends might be willing to give you money with no interest. Alternatively, you can explore taking out a small loan to kickstart your business. If you need to make a small initial investment for your business, self-funding or bootstrapping is a good option.
The goal of pre-seed funding is to get a startup idea off the ground by allowing full-time project involvement, hiring key team members, building a proof of concept (POC), prototype, or minimum viable product (MVP), developing a go-to-market strategy, and getting some early traction needed to raise the (next) seed investor round.
Additionally, it’s likely that at this point, investors are not contributing money in exchange for company shares. Pre-seed funding typically involves the firm’s founders themselves as the investors.
A startup receives seed funding once it has developed its proof of concept, demo or MVP, market entry strategy, and/or initial traction.
Seed funding is commonly used for team and product development; official market entry; client acquisition; and testing of product-market fit and business models (revenue generation). With the help of seed money, a business can decide what its final designs will look like and who its target market is.
As the first round of capital, Series A investment doesn’t require external funding. At this point, most startups create a detailed plan for their product or service. The main purposes of it are marketing, enhancing the reputation of your brand, reaching out to new customers, and promoting business expansion.
The typical amount raised in a Series A round is between $2 million and $15 million, but because of high technology industry valuations, or “unicorns,” this amount has typically gone up. The typical Series A fundraiser in 2021 was $10 million. The Series A round’s investors are from better established venture capital firms.
When a company receives Series B funding, it demonstrates that the product has been properly promoted and that the buyers are purchasing the good or service that was predetermined.
Such investment supports a company’s ability to pay employees’ salaries, expand its workforce, upgrade its facilities, and become a global force. Companies going through a Series B investment round are usually well-established, and their valuations, which usually range from $30 million to $60 million, reflect this.
There is no limit to the number of rounds of funding that a business can receive. However, during the Series C investment, both the owners and the investors were apprehensive about financing this round. The discharge of the company’s stock increases with the number of financing rounds.
Many of these companies use Series C cash to boost their valuations before going public. Companies have higher valuations at this moment. Companies looking for Series C funding must have proven, dependable income streams, strong client bases, and track records of growth.