How to get funding for startups?
If you are starting your small business, funding is one thing you might be struggling with.
While it’s possible to kickstart your business with whatever amount you have gathered, you’ll need investors’ help at some point.
Especially when you are trying to step into a new product market or planning to expand your business, investment becomes essential for seamless growth.
However, it’s not easy to get funding as a small business. First, you must learn about the different types of funding you can access as a small business owner. In this article, I have listed a few different ways to get funding for a startup. So, keep reading.
Series Funding
Series funding is one of the earliest techniques for gathering funding for startups. After the seeding stage of a business, the co-founder or the founders of a company start to gather funds. They gather money in exchange for equity in the company.
The startups raise rounds of funds, with every one of the funds being higher than the next one, boosting the business’ value. Here are the different Series of series funding explained alphabetically –
Series A
Let’s talk about who Series A funding is for, who funds it, and the amount a business can raise through Series A funding.
Who’s Eligible? A business that has completed its seeding stage and has made some mark to gain traction on a few of its KPIs (Key Performance Indicators) is ready for Series A funding. The condition is that the business has to have some traction in the form of revenues, views, conversions, or similar parameters as per their KPIs.
Amount of Funding Available: Through Series A funding, startups can gain up to 9.3 million on average.
Who Provides the Fund? These funds come from venture capital firms. It can come from equity crowdfunding or angel investors being involved in the funding.
Series A Crunch: it’s common for many startups to fail after the seeding stage. Many startups fail to procure funding after the first few years of seeding are over. Businesses that were successful in their seeding round can fail during their Series A round.
Series B
Moving on to the next level of procuring startup funding, a business opts for a Series B when expanding its market.
Who’s Eligible? Businesses that already have procured their place in the market and have a specific customer segment can opt for Series B.
But before choosing a Series B funding, it’s important to consider the expansion plan. Does the business have the potential to 10x its market share? Will this funding help them reach more users or buyers? What’s the number attached to their goal, and what are the risks?
Amount of Funding Available: In Series B, businesses can expect an average of $21 million. However, the expected valuation can go up to $60 million.
Who Provides the Fund? Typically, the investors from the Series A investment return to reinvest in the company that needs Series B funding. The investors are usually venture capital firms and angel investors who want to ensure their money’s growing with a secure and growing company.
Series C
The Series C phase of funding for a business has a new motive. The business is trying to expand into newer market demographics in this phase. They also might plan to launch a new product or acquire newer businesses.
Who’s Eligible? Startups typically go for Series C funding when preparing for the last set of funding. In most cases, businesses would also go for a Series D or a Series E funding since they are preparing for an IPO at this point.
Amount of Funding Available: Typically, a company raises an average of $26 million in Series C funding. In this stage, the company’s valuation is typically around $100 to $120. The number of customers measures the valuation metrics the business caters to in this phase, its revenue, and the projected growth rate.
Who Provides the Fund? The fund is provided by venture capital firms interested in investing in late-stage startup banks, private equity firms, and hedge firms.
Series D
Series C is the last phase for a startup to raise funds. However, a business might want to move up to this stage under certain circumstances.
Expansion: The first reason is that the business may have found a newer market. That’s why, to procure funding phase, they might consider another boost of funding, Series D funding for startups.
Down Round: This phase might be required when the business doesn’t fulfill the objective after receiving Series C funding. They may go for another round of securing startup funding at a lower valuation.
The venture capitalists typically help get funding for startups in the Series D phase.
Series E
The last phase of procuring funding for startups through series funding is Series E. Typically, businesses should be able to raise funding at Series C or Series D.
But, if it’s coming down to Series E, then it could only mean that the business has failed or was unable to meet its expectations. The business may no longer want to stay private. It can also suggest that the business needs more push to go public.
Crowdfunding
Crowdfunding is a process through which businesses gather funds through collective effort. They reach out to their friends, Family, customers, and other interested people for funding.
Generally, crowdfunding is a process where business owners leverage the help of a community to raise funds. They do it through social media or crowdfunding platforms where people are ready to donate to businesses.
This process is generally the opposite of the typical funding method. Typically, businesses use their strengths and product prototypes to market their idea to gather funds. But, in this case, the entrepreneur tries to appeal to a larger audience demographic to get startups funding.
Small Business Loans
Small Business startup loans are loans for small businesses that rarely opted for a loan. These companies lack a history of applying for loans or any mode of financing.
However, the small business loans for startups typically stand for the umbrella term under which government-provided grants fall.
Loans of these types include –
- SBA Loans: The SBA loans are backed by the oSmall Business Administration.
- Credit Cards: Credit cards aren’t traditional business loans. However, in many cases, traditional business loans and credit cards help small businesses get instant small amounts in the early stage. It’s best to choose something with a zero percent APR. By doing so, you’ll ensure that you are getting a free loan.
- Short-Term Loans: These short-term loans are shorter than 18 months. These are usually available from money lenders who provide loans for short tenures with a high interest rate.
- Friends & Family: another way for startups to get funding is through their relatives, Family, and friends.
Venture Capital Investment
This allows growing startups to gain funding from angel investors and venture capitalist firms. These firms have investors looking for high-risk and high-return startups to invest in. The firms invest in small startups that are high risk but also have a high potential of doubling or tripling down their investment.
More importantly, when high-risk startups succeed and go public with an IPO, the venture capitalists benefit from acquiring the company share that grows.
Angel Investors
These are investors, entrepreneurs, and industrialists with a high net worth. They invest in small startups with a very small amount, ranging from a few thousand dollars to millions.
For many entrepreneurs and business owners, angel investors are the earliest forms of investors or ways of getting funding for startups. It’s comforting for small business owners that the angel investors themselves decide to fund them. There’s no need for intricate paperwork or hierarchical hurdles with financial advisors making the decision.
In several cases, entrepreneurs hope such investors can help and support their businesses.
Wrapping Up
Typically, the five options mentioned here are the most common ways for startups to get funding. However, it’s critical to understand the phase a startup is in and how it helps them build a better business in the long term.
Aside from those options, there are several other funding options small business owners and startups can try out during the early phase.
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