Funding today has become one of the most important ingredients in the startup journey. Especially since startups are probably even more popular than age-old businesses.
The success of a startup is, to a large extent, determined by the funding it receives. The investment in such companies is made in various rounds, each for a specific purpose.
“It’s not just about ideas, it is about making the ideas happen!”
Here are the various rounds of funding:
Seed Investment: planting the seed
This is the first type of investment round. This is a preliminary funding for the startup founder to establish direction and goals for his business. In a way, it gives birth to the startup. This round nurtures the seed or the idea for the startup. Seed funding rounds are typically small and are channeled toward research and development of an initial product. The money may also be used for conducting market research. Or even for expanding the team
Purpose: the purpose of the series seed is for the company to figure out the product it is building, the market it is in, and the user base. Typically, a seed round helps the company scale to a few employees past the founders. It is also to build and launch an early product. As the product starts to get more and more users, a company will then raise a series A.
Who invests: Angels, SuperAngels, and early stage venture capital funds all invest in seed rounds.
Series A: for optimizing
After the business has shown some of a track record, Series A funding is useful in optimizing product and user base. At this juncture, most startups have a strong defined idea of what the central goal is behind any product or service. They may even have launched them commercially.
Purpose: to scale distribution, to expand to various markets, at times also to figure out a strong business model.
Who invests: traditional venture funds, Angels may co-invest with venture funds in the A, but they have no power to set the pricing or impact any aspect of the round.
Series B: for building
Series B rounds are all about taking businesses to the next level, past the development stage. It is typically about scaling.
Purpose: startups use the funds to scale the business model, userbase and to make certain acquisitions
Who invests: same folks as Series A, and some additional firms who specialize in later stage deals
Series C: for scaling
A startup uses the Series C funding to accelerate what it is doing beyond the Series B. In Series C rounds, investors inject capital into the meat of successful businesses. He does so in efforts to receive more than double that amount back.
Purpose: to continue to grow fast, to go international, also to make other acquisitions
Who invests: folks mentioned for Series A or B, often other sources of capital may invest in later rounds such as private equity firms and hedge funds
There is no limit
There is no limit at all to the number of rounds of funding a startup can have once the viability and returns have been established thereafter. All the rounds of funding work in essentially the same basic manner. Investors offer cash in return for an equity stake in the business. Between the rounds, investors make slightly different demands on the startup. Nevertheless, Seed, Series A, B, and C investors all nurture ideas to come to fruition. Series funding enables investors to support entrepreneurs with the proper funds to carry out their dreams, perhaps cashing out together down the line in an IPO.
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