Stages of Funding a Startup

A startup may require to raise various rounds of funding to establish and expand its business. In this article, we introduce you to different stages of funding.

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For starting and building a business, a lot of money is required. When starting up, one may or may not be financially secured to fund their venture. This explainer will give you a basic understanding of different levels of funding a start-up.

Different Stages of Funding

Bootstrapped - When you invest your savings in your venture, that is bootstrapping. Founders generally bootstrap their ventures in the initial stages - when they are building the product and the prototype.

Seed Funding -  Seed funding is an investment made at the preliminary stage of the startup. Founders can raise seed level funding from angel investors, friends, family and acquaintances. You can either offer them interest or equity in your startup in exchange for the capital.

Venture Funding - Venture Capitalists are institutional investors that invest in a start-up in exchange for equity or shares. They own a certain per cent of rights in the company they invest in. They generally come in the picture after a company has developed a basic prototype and business model. There are various levels or series of venture funding.

Series A -  At series A level, startups use the funding for expanding their team and business, getting office space, among other things.

The average funding amount is $5 million (Rs 35 crore) and the average company valuation at this stage is $10 million - $20 million ( Rs 70 crore - Rs 150 crore).

 

Series B - If your startup is doing well then you raise another round or series of funding to expand and scale your business further. The average funding amount for series B is $20 million (Rs 140 crore) and the average company valuation is $40 million - $60 million (Rs 300 crore - Rs 450 crore).

Similarly, to further scale your start-up, you can raise series-C and beyond. If your company becomes very big in the meantime, you can file for an IPO.

IPO or The Initial Public Offering is the first time you will be offering the shares of your private limited company to the public. It is a very big feat for a startup to go public and a mere minuscule of them are able to become that huge.

There are approximately 5000 companies, among millions of companies,  listed in India’s stock exchanges. Filing an IPO is complicated and requires a lot of documentation and criteria to be fulfilled. For a startup to file an IPO is to enter a prestigious and elite group. The company after filing an IPO no more stays a startup and a private limited venture.

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