Startup Funding: What It Is, How It Works

Finding the startup funding that goes into creating a company is one of the most challenging tasks for any businessman. Funding or financing a business is a tough job, and therefore having a good financial plan before starting a company is important.

Based on a good business plan and a strong financial plan, many organizations can help out startups by acquiring the right funding. Funding for startups is powered by many industrialists, non-profit organizations, and even the public in many cases.

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Knowing the right method and the best time to approach is one of the most important things for an entrepreneur. One cannot exploit all the opportunities at once; neither can initial investment be relied upon in these formats. These investments are preferably for the second or third round of funding once the initial setup is done.

Startup Funding — image credits: https://www.startupindia.gov.in/

Stages of Financing and the Investment Method

When it comes to funding for startups, a businessman must have a steady plan for financial aspects. There are several stages in business, and in each stage, the business would require funding. The entrepreneur must plan which investment option to exploit at which stage of business. Many investors provide funding for a startup business at many stages, and below are some of the stages and investment methods that a businessman should be prepared for:

Initial Investment

Also called the friends and family around, this initial phase of investment must come from the owner of the business in the form of capital. If in the case of a partnership, the partners can also pool the money.

The money could be from themselves or could be borrowed from friends, family and relatives. This money is usually required to create a good business plan, conduct a market study, complete research and development for the product and prepare a factory, manufacturing facility or office space that can be included in the finance plan.

Seed Funding

Seed Funding is the further requirement of funds in the next stage of business. At this stage, the initial plans are already in progress, and the company has seen some level of success and market penetration. It is now time to invest further so as to expand the facility and create more turnover.

At this stage, the owners must look for sources who are willing to invest in startups, such as angel investors, Venture capitalists and banks or private financiers.

Series A Round

This is the first round of funding once the business is now well established in the market and wants to expand its factories to accommodate new products or branch out to many more locations. At this stage, either angel investors, venture capitalists or the company’s profit returns can be invested into the company based on the amount needed.

Series B Round

Series B funding is the next level of funding that would go in after a few months or years of successful series A funding that helped the company spread its wings.

In this round, the funding is usually required for international expansion or for rebranding exercises, advertising budgets and marketing activities to sustain the scale of business. This could be followed by Series C funding based on the operation scale.