The world of employment has bloomed due to the rise of startups emerging in India. Today, some of the most popular and trusted brands around us are leading startup companies in the market. But how do startups operate? Do they have enough per capita income to keep functioning smoothly? Learn the different rounds of funding for startups today. Learn How To Remove Git Remote Repository Just by clicking here!
There are usually three rounds of funding involved in establishing a startup. These are the A series, B series, and C series. Keep reading this detailed guide to know what funding is for a startup and how this funding works. And learn about them in detail.
Without any more rambling, let’s learn the basics of startup funding 101.
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Startup Funding | How Do They Work?
Before launching any startup to the initial public offering or IPO stage, startups do a test run. This test run is better known as the fundraising round. Here investors see the potential of a startup, its market novelty, and consumer base response. Based on that, they invest. This investment is not for free, however. They get the benefits of holding a portion of the company to their name.
It’s Shark Tank, but without the reality TV aspect to it. There are different rounds of funding for startups. In the next segment, we will learn the different startup funding stages.
What Are The Different Rounds Of Funding For Startups?
Imagine this scenario. You buy your laptop. You’re out at an electronics store to upgrade your laptop. The person at the service station guides you on the different laptop brands and models and discusses their unique selling points and novelty after much deliberation, reviews, and weighing out all pros and cons.
The funding for startups works similarly. The main difference is buying a laptop is a one-thing transaction. However, there are different funding rounds for startups, making investments at different stages.
Different funding rounds for startups are usually determined by how the investor envisions the potential of a startup. For this reason, the word angel investor is quite common among budding startup companies. These investors are those who give the seed funding. Sometimes, there is also pre-seed funding involved.
It doesn’t sound practical to rely on the investment made in the first round to lay and grow your business in one get-go. For this reason, company owners are always looking for outside sources to provide fuel income to keep rolling towards their common goals or mission. These additional rounds of funding secured are called Series A, B, and C. Let us learn about these different rounds of funding for startups in detail, read the following section.
Imagine this stage as to how you grow a plant. Now you are going to set the seed into the ground. To set the seed into the ground for it to grow. You buy your pot, clay, and soil for the seed to grow in any other simple gardening items to ensure the steady growth of the plant.
That is the pre-seed funding stage, explained in baby terms. In simple words, pre-seed funding is the very basic stage of a startup. The company is just setting its ground and laying operations and roadmaps of its goals and product ideas. The funding secured in this stage is usually out of their own pockets. Or from close family or friends.
The different rounds of funding for startups mark the beginning. This startup funding stage can be set as the official set-off. Typically, this is the part where an angel investor, an enterprise, or another company (with more fiscal benefit) raises interest in your company, its services, and its products.
The seed funding round is getting the seed to make a plant. Alas! Most companies typically fail to grow their plants, i.e., die down in the seed funding round itself.
Seed funding gives these companies the power to do analytical research and understand their market. It aids them in creating a better idea of their consumers and preferences. They can fine-tune their product to the customers’ needs before the big launch. Some companies even take a loan from small finance banks for this stage. You can see a potential list of places over here that give out loans to startups for funding.
Series A Funding
Look at your pot of plant now. It has a sapling growing. Now, will it turn into a plant? That is the problem that needs an approach in Series A funding.
Companies that reach the Series A funding stage have a well thought and planned development plan. This plan ensures that a company can earn profit in the long term. The best part about startups is they come with unique approaches that attract users to them. However, one also has to manage and keep that attraction up and going.
It is easy to get lost in the competitive market where similar novel ideas are generated daily. One has to see how and who wins in the end. Companies usually turnover $15 million or more in series A funding.
These companies go by stricter valuations by investors. They should also reflect the scope of your monetary profits and how it benefits stakeholders. You don’t just need a great idea for a series A round of funding. It would help if you had a great idea but an even greater profit plan with your long-term development goals explained.
Series B Funding
When a plant blooms completely, you stove to keep it well and alive. For that, you use pesticides and fertilizers. That is a series B funding.
When your company reaches Series B funding among the different funding rounds for startups, it has been doing well. It has a steady user base and even better monetary returns. The funding focus in this stage is to soar your startup and prep it. As your company grows, the demand for services will rise too. In such cases, your company has to be equipped, and that is where investors come into help.
Series C Funding
In the different funding rounds for startups, we have reached the climax of our journey. The Series C funding stage. Your plant is completely bloomed now. You can focus on growing more plants from the seeds and utilizing your plant. The plant here is symbolic of your company.
A series C funding is one where you secure additional funding. It is then utilized for market research, developing the company, ideating new products and services, etc. Pat yourself on the back because your company is doing well if it is at this funding stage.
FAQs (Frequently Asked Questions)
How many rounds of funding for startups are there?
Mainly, four rounds of funding are observed. The seed funding, and the alphabet series.
What is the pre-seed stage?
The pre-seed stage is where the company is just starting. The founders usually make the capital and investment during this stage of the startup and their close friends, families, etc.
What is the seed funding stage?
Typically, this is the part where an angel investor, an enterprise, or another company (with more fiscal benefit) raises interest in your company, its services, and its products.
How many series of funding are there?
There are three series of funding after the seed stage.
Business running is not a walk in the park; hence, knowing the common business models and approaches is important. Before opening or starting a new venture, one has to be sound about the monetary aspect of it. Understanding the different funding rounds for startups makes you understand your action plan. And now, you can set an idea of how you want to secure your funds and establish your company.