Every startup requires funding to keep them going. Funding in the form of investment or loans is one of the primary requirements for any business. The business or a start-up needs money to kickstart in the initial stage.
At this stage, the investment is called capital. Beyond this point, the funding that goes into the business is called working capital. There are many startup funding stages based on what kind of funding the business is looking at and at what stage.
Choosing the right forum for acquiring funds is important as knowing whom to approach and at what stage. There are types of funding for startups, but there are also constraints on acquiring these funds based on the stage of the business.
Stages of Funding
A start-up is a company that is founded by one or more partners on a small scale based on an idea or innovation. Since it is a small-scale business dealing either with a product or a service, it is possible that funding may become an issue for such businessmen.
Approaching banks is one of the many ways for startup fundraising, but knowing the various sources and the right timing to approach them can make all the difference when it comes to funding.
When a startup is incorporated, the business needs an initial fund to borrow money from to fetch all the initial requirements such as choosing a space, providing the right set up in the space, buying machinery and equipment, tools and other devices for utility, etc.
This fund that is required initially is called Capital. Once all the initial requirements are fulfilled, the company needs to start its operations and requires further funding for the procurement of raw materials, hiring transportation, logistics and warehousing and many other requirements until they start turning over revenue.
This funding is referred to as working capital and is something that a company would require over many startup funding stages.
Below are some of the sources that one can secure funds from at different stages:
- Capital Investment from First Circle
Capital is always invested by the partners of the company. It is usually from their own funds or borrowed from friends and family. This stage is one of the primary stages of funding and is usually used for all initial requirements of the startup.
- Seed Funding
Seed funding is the next stage of investment where the startup requires money to kickstart its operations. This money can be invested by an outside investor for market research, customer segment and profiling and working capital.
- Angel Investors or Venture Capitalists
Angel investors or venture capitalists can help through several stages of venture capital by funding at various levels of the startup. This funding goes towards expanding the business and accommodating the working capital.
There are several rounds of funding and stages of venture capital financing that a startup may go through, often referred to as Round A, B, and C based on which level the business has reached. Each round of funding can be used to provide market intelligence, for advertising, for expanding the business and for improving the product/service through research and branding.
- IPO
Initial Public Offering is when the company becomes public and is willing to offer its shares in exchange for funding for the expansion of the business globally and to help position the brand in a better way.
