Most people would have heard the term start-up being talked about here and there. It seems like many businesses today are coming into existence as start-ups. The fact is that the Indian Government is trying to support start-ups by introducing many new programs and initiatives to help entrepreneurs to begin their ventures into business.
In this light, many people have well-established themselves in business, trying to help new start-ups by financing them and improving their financial capacity with funding. This gives rise to startup funding stages that need to be understood by entrepreneurs so that they may plan their financing in the best possible manner.
Knowing the various funding that is available in the market and the opportunities that can be exploited is important when it comes to managing funds for a start-up.
Startups and Types of Funding
Start-up refers to a small-scale business that deals with goods or services presented to the end customer by the business. It is usually found by a single person (sole proprietorship) or a group of partners (partnership).
A start-up is very much like any business in existence and therefore needs to apply for all licenses and grants that are required legally. It also means that the owners would need to look into their financial planning by ascertaining the funding that would be required to kickstart the business.
Many startup funding stages will be required to run a business. The most important ones are mentioned below:
1. Initial Capital
Initial Capital is the principal amount that needs to be invested in the business so as to buy the required machinery, space, furnishings and fittings, equipment, and other such things that are needed to kickstart the business. Many people use either their own money or bank loan for this purpose. For startup fundraising, there are some rounds of funding that an entrepreneur may consider:
Friends and Family
The first line of funding always comes from within the company. It could be self-investment, loans from friends and families of the partners are the first line of investment into the capital of the business.
Seed Funding
Seed funding is the next level of funding that is required to move on to more materialistic levels of the business. In this stage, seeking a seed investor can be helpful who is an outsider willing to invest in the company by lending large funds for gaining market understanding, research, and marketing purposes
2. Working Capital
Working Capital is a continuous form of funding that must go into the business every now and then. Working Capital can be acquired in many forms, and below are some of the types of funding for startups that can be an option at this stage:
Angel/Venture Capitalist
The next funding for working capital can be derived from Venture capitalists and Angel Investors. These are investors who assist businesses and start-ups with funding in return for a percentage of the returns or as loans to companies.
There are many stages of venture capital funding where a company can go into rounds A, B, C, etc. These stages of venture capital financing can be called upon as and when required.
IPO
The final stage for funding, once the company is big enough and still needs money to extend into bigger markets, is an Initial Public Offering through the sales of shares.
