Getting funds for a new startup is essential to its growth prospects. Each funding stage has different set of investors, and whether you are just forming your idea or expanding the business, understanding the different stages will help you make smart decisions. This article will delve into each of the five primary steps to funding a startup and its corresponding sources of funding.

Key Note 1: Pre-Seed Stage

This is the very beginning of your entrepreneurial life; this is where the journey starts. This stage usually covers an idea and no product, which means a lot of conceptualization and planning is needed.

Funding Sources:

Bootstraps: This is where many entrepreneurs start, funding their initial expenses using their own savings. Family/Friends: If you need additional support, family would be the best shot because they would be willing to invest. Grants: There are various government and private grants available for new businesses which aim to encourage innovation or support specific industries.

FInancing at this point is often devoid of structure and minimal because the business is still at a conceptual level.

Key Note #2: Seed Stage

After you have built a prototype and done some market testing, its time for the seed stage. You have preceeding validation from your audience at this stage and you require monetary assistance in order to enhance the product or further your reach.

Funding Sources:

Government Loan Schemes:

CGTMSE (Credit Guarantee Fund Scheme for Micro and Small Enterprises) – This program helps promote small business by offering loans without the need for assets as guarantees.

Mudra Loan – A program aimed towards funding small business owners.

StartUp India \ StandUp India Schemes – These have been designed specifically for new business as well as women entrepreneurs so they can acquire funds easily.

Incubators – These are another means of funding as well as mentorship should the government options fall through.

Angel Investors – These are people who offer capital during the initial phases of business in return for shares. As it involves so much risk, investors in these networks like Delhi Angel Network or Hyderabad Angel Network expect high rewards in return.

Crowdfunding: Offers financial aid from many people who can only afford to donate a small amount in exchange for a few shares in a firm or a discounted product. As an example, if you want to launch a new high-tech bicycle in India, offer early supporters to purchase the bicycle for less than the retail price.

Key Note #3: The Series A Stage

At this level, the product is already developed and known to many people. You now need funds to start mass production and marketing while scaling up your customer base. At this level, investors expect more from your company and they have control over your business to some extent.

Funding Sources:

Venture Capital Funds: These investors look to support new innovative businesses and technology with a significant level of investment. They seek active businesses with high and easy growth together with appropriate business setups. Always remember to check whether the investor only comes in with funds or if they have stronger business relationships that can encourage growth.

Venture Debt Funds – Instead of funding your business with equity, venture capitalists could offer debt financing which is termed as Venture Debt Funds. In simple terms, venture debt allows you to obtain a loan that can be paid back later by converting the debt into equity after the business is off the ground. Currently, banks and Non-Banking Financial Companies (NBFCs) like SIDBI and IFL are ready to provide debt funding at this stage.

Key Note #4: Series B, C, D, E, F және одан әрі

In the later stages of funding, your business should be more developed and those would be: Series B, C, D, E, F, and above. Your company goes through a growth spurt and looks for lots of capital to help scale operations. At this stage you company should already have a higher valuation, further capital is expected to be deployed into marketing for greater visibility and expanding market beyond their first customers.

Funding Sources: These ranges will be your first sources of funding after launching the company. After some time, you are expected to seek external funds from investors like Sequoia Capital and SoftBank or use your own firm for further scaling the business. These investors will spend the capital amounts on a business with over a $100 million valuation tipping the rest of the world over businesses that have completed venture funding, get ready to bootstrap.

Private Equity Firms: Companies such as the Qatar Investment Authority and the Singapore Investment Authority begin to invest once a company develops a reputation for being profitable and stable. When a business reaches its peak level of profitability and stability, owing to the advancement of its function, private equity firms will come in to fund the company.

Strategic Alliances/M & A: Sometimes your business may merge with another company or get purchased by one. This forms yet another significant source of capital that can assist greatly, which in turn, allows you to scale up.

OYO and BYJU’S are examples of companies that expanded quickly after doubling or tripling their funding round valuations. Jio similarly grew, being aided with funds from private equity firms that helped Jio raise its valuation and grow significantly.

Key Note #5: IPO (Initial Public Offering)

An IPO represents the last phase of fundraising for a company, where it registers publicly on the stock market with either the Bombay Stock Exchange (BSE) or National Stock Exhange (NSE), allowing it to sell shares to the public and trade it for set value. This offers liquidity for the founders of the company and investors by enabling them to sell shares on the open market.

Examples:

Consider the case of IndiaMART. The company’s share price steadily increased over time after undergoing an IPO, which saw the company go public.

In the same manner, DMart’s IPO positioned Radhakishan Damani to become of the richest men in India after its owner’s.

Further, an IPO serves as an exit strategy for first investors to divest the company by liquidating their shares. If all goes well, the company’s worth increases, and it receives the money required to expand further.

Conclusion:

Knowing the stages of the funding cycle is fundamental for any new business looking to raise capital – be it at the pre-seed stage where one only has an idea or at the IPO stage. Every stage offers its unique set of funding opportunities. When a firm is young, it can rely on bootstrapping along with government loans, but as the firm progresses in its growth cycle, venture capital and IPOs become available as options.

Consider these stages when you analyze your current position and requirements for funding. Don’t forget that each stage needs detail strategies and thorough planning in order to appeal to suitable investors. With the right funding, your startup can scale, thrive, and IPO leading to long term success.