Every day we consume news stories about funding rounds.
Do you truly understand the different rounds, who has invested and what the business can do with that capital?
As a founder and executive, it is important you understand funding stages:
- What is each round and what is the money used for?
- Where does the investment come from?
- How can you gain investment for your business?
Pre-Seed
- Valuation: $10k-100k
- Used for: Testing minimum viable product (MVP) and creating a functioning business model
Seed
- Size: $10k-5m
- Valuation: $3-6m
- Used for: Product development and go-to-market strategy, to determine whether the venture will progress or requires further funding.
Did you know 29% of start-ups fail due to lack of capital while bootstrapping? This is why the Seed round is important for start-ups as it provides an influx of capital, but is also a risk for investors as the start-up hasn’t demonstrated itself.
Series A
- Size: $1-15m (average $13m)
- Valuation: $10-30m
- Used for: Improving revenue flow and long-term development.
Series B
- Size: $7-12m
- Valuation: $25-65m
- Used for: Expanding market reach or customer base, and streamlining operations
Series C and beyond
- Used for: Preparing for IPO, finalising key objectives from earlier rounds, expanding market reach, and preparing for future success.
IPO
- Process of offering corporate shares to the general public and enabling previous investors to receive a return on their investment.
- Used for: Acquiring funds and allowing owners to divest their ownership.
Deciding who should invest
A large part of the funding process is understanding where your investment comes from. These are the most common funding routes for start-ups.
Personal Network
A lot of businesses in the early stages will turn to personal networks, family and friends for funding. It is important to respect your existing relationships with clear terms or structured loans.
Angel Investors
These are experienced investors looking for around 15-25% equity stake in the business in exchange for capital. Businesses can benefit from their expertise, networks and industry knowledge.
Venture Capital
These firms are specialised investors focusing on high-growth startups, looking for equity ownership and accelerated growth. They offer direction and mentorship to make a business successful.
Crowdfunding
This method involves asking for donations from the public via a crowdfunding platform. The benefits include reaching a wider audience that believe in your business and receiving funding from different sources.
Preparing for Investment
Once you have a better understanding of the type of funding you want to raise and from where, you need to prepare the right information and conduct research to give yourself the best chance at securing capital.
Business Plan and Financial Model
Your business plan should be your roadmap for success, together with a detailed financial model. This will help investors understand the impact of their investment and the possibility of profitability.
Pitch Presentation
This is 10-20 slides containing information on the business plan, product/services, target market, objectives and team. It should clearly communicate your compelling narrative, value proposition and comparative advantage.
Investor Research
You need to conduct research on your chosen investors ahead of discussions. Find out if they have any investment criteria or particular interests, and highlight your match during discussions.
Due Diligence Process
You need to understand the process carried out by investors to assess your business. Being proactive and engaged during their research will build trust with your investors.
I hope this breakdown is useful for understanding the different funding stages and how they affect your business growth. Please share this breakdown with your network and if you need additional support, don’t hesitate to get in touch.
