Every new business needs money to get it off the ground and to grow. So a significant part of your effort as a startup owner will be raising funds. That’s why understanding the basics of raising capital will be critical to your success. In this article, we will discuss startup funding stages that every entrepreneur should know. You will learn about the specifics of series A funding and the difference between angel investing vs venture capital.
Bootstrapping which means building a company without external help or capital is not the best way to start a new business because the process is slow and requires a lot of work on the part of the founder(s). In the meantime raising funds from investors and VC firms via offering equity in your company for funding can bring growth to your business in a short time. You will have extra funds to spend on different growth activities:
Funding rounds are series of investments that raise capital for business. As your business expands and becomes successful, every funding round ensures greater growth. There are several startup funding stages:
Series A round is the first stage of venture capital financing. Before every funding round begins, business analysts evaluate the company that is seeking funding. They take into account different factors, including proven track record, management, market size, and risk.
During the pre-seed stage, startup owners use their own existing resources to get their operation off the ground, develop a business model, and build a working product prototype.Seed funding is the first of the startup funding stages which helps the early stage startup to finance such steps as product development, product launch, and market research. There are many potential first stage investors who provide seed funding: family, friends, crowdfunding, accelerator ventures, incubators, first investors funds, and angel investors. Wondering how to find angel investors that will want to seed invest in your business? There are different angel investors networks that connect entrepreneurs and investors.
A company may opt for series A funding when they have a working business model, an established user base, and consistent revenue figures. At this stage, investors are looking for startups with great ideas and a strong strategy that can turn this idea into successful business that makes a lot of money.It is hard to get the first series A investor but after you secure one, the others will be more eager to join the pack. At series A funding stage, it is essential to develop a comprehensive business model and to ensure that it is reliable and easy to understand because investors are looking for higher ROI. Lean Case provides all the necessary functionality to provide the investors with data that proves you are a trustworthy partner who is capable of turning their investments into long-term-growth and your business is reliable and sustainable.
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by: Eckhard Ortwein, CEO and Founder of Lean-Case
Series B funding is appropriate for startups who have successfully gone through seed and series A funding. Investors help startups transition into well-established companies, outlive competitors, and expand their market reach. At this stage, the risk is lower so the amount of funding is larger than in series A. This round propels your company into the Major League.Series C funding is necessary when a company is a success on the market and looks for acquisitions, greater market share or developing new products and services. The funding is focused on growing a business as quickly as possible. Most companies use series C funding as an exit strategy to boost IPO (Initial Public Offering).
When you are looking for capital for your business, you can choose between different options. Let’s compare venture capitalist vs angel investor. These are the two major types of investors that provide venture capital to startup companies and small businesses. How does venture capital work?
Angel investors are typically wealthy individuals who invest their own funds in early stage starups and face higher risk. A venture capitalist is a person or a firm that uses funds pooled from large corporations, investment companies, and pension funds. In a venture capital deal, a company is divided into large ownership chunks which are sold to several investors through limited partnerships. From a startup perspective, they give stock in the company to the venture capital investor that also gets some control over the business affairs of the company. Some investors can also offer more than just money, for example, business experience and insights or business contacts.
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CEO and Founder Lean-Case - Eckhard is a Serial Entrepreneur co-founding cyber-security startup accells acquired by Ping Identity and m-payment startup paybox acquired by Sybase/SAP. As a Business Angel, VC Partner and Investment Advisor, he has realized that turning business models into numbers is a major challenge and must professionalize.
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