Investment plays an important role in the Start-ups at each and every stage of the development in manufacturing and growth of the business. It is difficult to raise funds at initial stage, as the company has no income and the cash inflow will also take time. At the initial stage, Start-up Company get funding from the family, friends and relatives.
What are the various ways to raise fund at planning stage of start-ups?
Pre-seed Funding- This is the first stage of raising funds for start-ups. One can say that at this stage investors invest on the plan rather than on products because the product is not developed yet. The funds raised at this stage are used for developing the business ideas.
Seed Funding- This is the first official stage of funding in which the development of product starts and investors tends to get the profits from the business.
Angel Investors- Angel investors are those investors who have surplus money and want to invest it in the start-ups in exchange of the equity. They start earning their potential share as the business start growing.
Simultaneously, there are other methods from where the funds can be raised at initial stage whereas, the fund raising process does not end here as the business need funds at each and every level to make the business on higher edges and generate profit out of that. At every stage the motive of raising fund differs i.e. at initial stage it is for formation, next for survival, growth and furthermore. Thus, can be concluded fund raising is a never ending process.
What are the different series of funding?
After raising fund for the initial beginning, founder needs funds for the development and growth of business. The said funding is known as series funding i.e. Series A, Series B and so on.
Series A Funding: Generally, the series A funding is raised from where the start-up business gets its wings and start flying. Now, the product has created place in the market and for increasing the supply, money needs to be invested in the business. Here comes the role of series A funding when funds are raised for increasing the productivity in the business. The fund can be raised by various ways but the two common ways are venture capitalist (Private equity investors that provides funding to the companies with high growth potential) and the angel investors (Private investors having surplus money who wants to invest in start-ups in return of equity). To raise funds from these sources it is important to know some important facts such as where they invest, why they invest etc.
They invest in the companies with strong management, large potential market and unique product or service with a strong competitive market. And, the answer to the question why is obvious to generate profit out of that investment.
Before approaching to the investor for Series A funding you need to prepare well for the same. The questions that are asked by the investors must be answered by the founder precisely and correctly. The investors may ask for the growth chart, expected market, market value of the product or the expected profit in near future.
Series B Funding: This stage of funding is raised when valuation of company is higher than valued at time of Series A funding. The business needs to raise more fund as the market size of the business expands and there is substantial and sustainable market for the said market in future. In order to meet this increased demand, business needs to be expanded in every terms with respect to labour, machines, management team etc. The founder of the company can raise fund from the same ways as mentioned in Series A funding by presenting the order book, the expected market etc.
Series C Funding: This proves to be the last stage of funding as business self capable after the development stage. However there is no restriction to carry further the series in continuance in the form of Series D, E,F and so on. At this stage the business is fully developed and earning profit out of it but who does not wants to earn more profit. Therefore, in order to expand the business globally or introducing a new product targeting the same potential market there is a requirement of additional fund in the business. There are many investors who wants to invest money in the business at this particular stage as the business is generating profits and there must be some investors who wants to sell their equity for capital gains. After this stage the founder start gaining personal control over the business without interference of the investors.
It can be concluded from the above discussion that in order to develop the business in market, funding is required at each and every stage. The series of funding is somehow similar to each other except the expectation of investor from that particular stage. In order to get the funding from investors it is necessary to prove the sustainability and growth of business that eventually leads to the growth of all personnel in the company.
-Surbhi Singla
Associate at Aggarwals & Associates, S.A.S Nagar, Mohali.
