To start a start-up with a good business idea, one must first find apt fundraising channels and the capital for it. An entrepreneur’s new business philosophy must reflect the value of her/his models and products, as well as the prospects for further development.
The final definition of any business idea requires several blueprints and immense strategization, which can be achieved using SWOT and PEST analysis techniques. Defining a customer development plan and developing business development plans are essential criteria for a business’ success. However, many companies fail because, due to their inability for fundraising enough capital. At the end of the day, money or capital is needed for the business’s work at all stages.
If you are at the step in your journey where you want to know how to initiate the fundraising process for your business idea, you have come to the right place. Let’s find out the basics of raising funds for a start-up and the steps involved in the process.
A start-up can request as many rounds of funding as possible as there are no particular investments restrictions.
Self- Fundraising- Bootstrapping a Business Idea
When an entrepreneur collects money on her/his own, s/he has to decide how much funds can be ordered for starting a business. Evaluating all investments and savings from multiple accounts, as well as with the help of friends and family- these are the key sources of the initial fundraising or self-financing process. This stage requires less complexity and paperwork. Friends and family might charge a lower interest rate on their investment. If a small investment needs to be made, self-financing is a more appropriate way to go about it.
Initial Capital, or Seed Funding
Initial capital investment is made at the initial stage of setting up a start-up. This helps the company find and create the right footing for its operations. The funds raised at this level are used to understand the customer’s needs, preferences and personalize the products or services.
As mentioned above, many budding entrepreneurs raise funds from friends, advisors, and families, while others take money loans from banks or offer company shares. (FUN FACT: Facebook paid the initial operators of its office setup and other functionalities in ‘company shares’, and most of those receivers are now millionaires).
Venture Capital: Fundraising large amounts of Capital for Companies with High Growth Potential
When a start-up final product or service is commercialized, venture capital financing begins. Regardless of the profitability of the product, all companies plan to undertake this step. And this is a long journey that comprises a series of steps, as mentioned below:
Series A (Round A) Funding
As the first round of funding, Series A investments do not require external financing. Series A funding is started when a start-up has developed a specific plan for its product or service. It is mainly used for building brand reputation, opening up new markets and for business development.
Series B (Round B) Funding
When a business relies on a Series B investment, it shows that its products and services are selling well, and customers are choosing to purchase the product or service, building and broadening a high-potential market. This funding can help businesses pay, hire more employees, improve their infrastructure and even make them global players.
Series C (Round C) Funding
A start-up can request as many rounds of funding as possible as there are no particular investments restrictions. However, when making Series C investments, owners and investors become wary after the third round of financing and raising capital. This wariness stems from the fact that the more investment circles get involved, the more freedom of equity a company will grant.
Initial Public Offering (IPO)
When a start-up decides to raise funds from the public (including institutional and private investors) by selling its shares, it’s called an Initial public offering (IPO). Initial public offerings are often associated with opening up a business for the public to get involved. With a company’s IPO, the public can buy shares and invest in its operations and business.
This is the basic structure and the journey of a start-up’s fundraising quest that every budding and aspiring entrepreneur must be aware of. For detailed analysis and insights into the process, please browse our website for your related queries and find the exact solutions to your business questions.