Building a company from the ground up is very hard work with the potential for great rewards. It also requires the ability to bring a great idea to life, dedication to the vision, and in most cases a substantial financial investment to launch your startup. Generating the investment needed is difficult to do when your company hasn’t even begun bringing in revenue. This is where startup funding comes into the picture. It is a series of rounds that helps you acquire the funding you need in order to launch your startup and scale it into a profitable company that is able to reinvest in itself. Let’s take a closer look at the different stages of startup funding rounds.
The pre-seed funding stage is the first stage of a startup. It is also known as bootstrapping. There is a question as to whether or not this should even be considered a startup funding stage. You are just getting your idea and business off the ground. During this stage, startups are worth anywhere from $10,000 to $100,000. At this point, you must fund the business yourself. There isn’t proof of concept and too much risk for outside investors to take a chance in exchange for equity so early in the game.
Often the only potential investors that you are able to obtain at this stage are friends and family who are ultimately willing to invest because they believe in you, for this reason, you may also hear of this round of pre-seed funding being called a “Friends and Family” round. Pre-seed funding also consists of market testing, because in essence, you are exploring how well your product might do realistically. By the end of this stage, you should have decided how to market and sell your product in preparation for launch. Keep in mind that your company is not launched during this stage.
This is the second stage of startup funding rounds. During this round, startups decide on final products and services and nail down who their target audience is. The valuation tends to be $3 million to $6 million. In this stage, you can look to angel investors, micro venture capitalists, and crowdfunding to raise money. There is still a substantial risk for investors, so equity must be given in exchange for funding. During the seed funding round, startups use the money raised to launch their products. They work to get a foothold in their industry and continue to test the market and further develop their products based on findings from market research. Most startups at this stage are trying to demonstrate that they have a Minimum Viable Product (MVP), to start to draw in investors.
Series A Funding
Series A funding is the third stage of startup funding, but the first round where entrepreneurs have a chance to raise money from venture capitalists. Startups in this stage are typically worth $10 million to $30 million dollars. At this stage, you have a final product, a solid customer base, and are generating consistent revenue. Now, startups are focused on scaling across different markets. Entrepreneurs must create a plan to make sure their company generates money in the long-run and not just the here and now. At this point, potential investors include venture capitalists, super angel investors, accelerators, and strategic partners. Investors who fund startups during this round want to see a solid business strategy that will allow them to get a return on their investment.
Series B Funding
Startups at this stage are worth anywhere from $30 million to $60 million dollars and are continuing to grow and scale to meet ever-growing customer demand. At this point, they are working towards scaling, increasing market share, building quality teams, and implementing processes to ensure that their company has longevity. Venture capitalists and late-stage venture capitalists are the most common investors for startups at this stage. Most startups at this point have a primary venture capitalist who is able to help bring in additional investors when needed.
Series C Funding
By this stage, startups are well established and projected to go the distance. Funding acquired during this stage is put towards developing new products, reaching new markets, and even the acquisition of smaller startups that are struggling. Potential investors including investment banks, hedge funds, and venture capitalists are more than happy to make an investment in startups at this stage of funding because they have already proven to be successful at a large scale and are continuing to grow. The goal of this stage is to get on the right path for IPO (Initial Public Offering). Companies in Series C Funding are valued from $100 million to $120 million.
There is a Series D Funding stage for startups with special circumstances. For instance, if a startup is looking to merge with another company. However, this round of funding is very rarely used and companies go straight to the Initial public offering stage.
Initial Public Offering (The “Made it” Stage)
This is a massive milestone for any startup to reach. Startups in this stage are bringing in at least $100 million of revenue annually. They are very well established with only the best teams overseeing the financials, product, and development, marketing, etc. What makes this stage unique is that this is the first time that corporate shares are offered to the general public, hence the name initial public offering (IPO). Now, your potential investor is your consumers. This also makes mergers and acquisitions easier because the company can use these shares to obtain smaller startups.
In fact, many entrepreneurs become investors after their startup reaches the public phase. There is no doubt that they’ve earned it! They take great pride in helping new entrepreneurs get their businesses off the ground. After all, there isn’t anyone better to mentor young startups than those who have already successfully navigated the waters to the top.
Entrepreneurship is a Marathon
Starting your own business is a marathon, not a sprint. The stages of startup funding are meant to help entrepreneurs obtain the financing needed for businesses with exceptional ideas that just lack the financial backing to get it to market. Ascent understands the plight of startups and is dedicated to giving entrepreneurs access to potential investors that can take their business to the next level. Our conference allows you to put your business in front of the best investors from all over. The best success stories start with opportunity. Do your startup a favor and register for Ascent’s 2-day conference today!