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| Megan Rexazin/Pixabay |
It all starts with a great idea. Over time, some people with ideas act on their vision to create something that benefits a certain section of people. As more time goes and more folks get benefited, the startup grows, and once in a while, it turns into the Amazons and Ubers of the world.
However, scaling up a good idea requires truck loads of money. Thankfully, there are individuals, firms and giant corporations that are into the business of funding startups. But how does that world work?
Here's a quick guide on startup funding.
Seed Stage Funding - This is when a startup idea is at infancy. Of course there has to be a proof of concept/ working prototype, depending on the nature of the business. However, at this stage, there are no real revenues from the model yet, though the money making potential is legit.
Seed stage investments are based entirely on the founders' capabilities. Investors don't really care about the idea so much. Instead, they will fund a startup only if they are sure that the founders have the drive to create something valuable.📝 Most investors will interact directly with founders at seed stage and hiring a funding advisor is irrelevant. This is more of a friends and family round.
Pre-Series A Funding - Once the seed money has been fruitfully utilised to build a Minimum Viable Plan (MVP), and revenues are expected in the near future, a pre series funding becomes likely. At this stage, investors will go through the relatively simple cost and revenue projections, operation methods, expansion plan and future potential.
📝 Again, at this stage most investors will like to speak directly with the founders, deliberate on the business plan to assess the potential to fund the startup. External advisory is still not very effective.
Series A and B Funding - When the startup has established a sizeable regular revenue (say $100K a month), it could now look to raise $2 million and above. For this stage, a good funding advisor is critical, as they are specialists who add value with pitch decks, revenue projections, KPIs and the happily-ever-after storytelling.
📝 Series A/B fundraising takes between 2 to 6 months to complete, and with founders busy managing the growing business, a funding advisor can use her expertise to raise the money for a success fee. (Success fee ranges between 3% to 5% of funds raised).
Series C and Beyond - These rounds generally go above $10 million and are strictly banker and lawyer territory, even if the founder understands financing. There is simply too much to be done and all tasks require deep expertise.
How Should You Begin?
If you're just starting out with an idea, bootstrapping (using existing resources at your disposal) is the best option to keep your startup on course.
Bootstrapping helps founders stay sharp, committed and true to their cause, due to the sheer amount of heat and pressure it puts on them. Only heat and pressure make diamonds, FYI.