An introduction to the 5 phases of startup funding and how to match a VC funds life cycle.
In today’s business, good ideas are not enough for success. You will need investment in order to grow your business.
It is important to understand the different phases for raising funding for your start-up.
There are 5 phases as follows:
Phase 1 - Seed funding and angel investors – This usually comes from the entrepreneur, family, and even crowd funding. This money allows you to solidify a team and establish a solid business plan.
Phase 2 – Round 1 of funding
Series A funding – Initial VC funding usually looking to invest and not get a return for 10 years.
Phase 3 – Round 2 of funding
Series B funding – provided the business is doing well then you may receive another round of funding. At this stage in the VC lifecycle the VC is looking at the portfolio of investments and weeding out the poor performing ones and putting money into the ones that are successful. It is also possible to get additional C, D funding rounds etc depending on the progress of the business.
Phase 4 – Expansion
By now your start-up will be 3-5 years old and hopefully running at a profit. Funding in this stage will be either subordinated debt or preferred equity. This is your “growth” money and helps to push your business into the next phase.
Phase 5 – IPO or Sale
By now your start-up is 5-10 years old and the venture capitalists are ready to get their return when you sell or go public with an IPO (Initial public offering). VC firms can enjoy up to 700% return on investment when their companies go public.
Top 5 Finance Tips for Start-ups
1. Get a good accountant.
2. Set up company and limit liabilities
3. Cash is king and the life line of every start-up. You need to be very aware of when cash is going out and coming in.
4. Make sure you try and find subsidies available to help your start-up.
5. Revenue – understand where the money comes from and try and find recurring sources of revenue.
An introduction to the 5 phases of startup funding and how to match a VC funds life cycle.
In today’s business, good ideas are not enough for success. You will need investment in order to grow your business.
It is important to understand the different phases for raising funding for your start-up.
There are 5 phases as follows:
Phase 1 - Seed funding and angel investors – This usually comes from the entrepreneur, family, and even crowd funding. This money allows you to solidify a team and establish a solid business plan.
Phase 2 – Round 1 of funding
Series A funding – Initial VC funding usually looking to invest and not get a return for 10 years.
Phase 3 – Round 2 of funding
Series B funding – provided the business is doing well then you may receive another round of funding. At this stage in the VC lifecycle the VC is looking at the portfolio of investments and weeding out the poor performing ones and putting money into the ones that are successful. It is also possible to get additional C, D funding rounds etc depending on the progress of the business.
Phase 4 – Expansion
By now your start-up will be 3-5 years old and hopefully running at a profit. Funding in this stage will be either subordinated debt or preferred equity. This is your “growth” money and helps to push your business into the next phase.
Phase 5 – IPO or Sale
By now your start-up is 5-10 years old and the venture capitalists are ready to get their return when you sell or go public with an IPO (Initial public offering). VC firms can enjoy up to 700% return on investment when their companies go public.
Top 5 Finance Tips for Start-ups
1. Get a good accountant.
2. Set up company and limit liabilities
3. Cash is king and the life line of every start-up. You need to be very aware of when cash is going out and coming in.
4. Make sure you try and find subsidies available to help your start-up.
5. Revenue – understand where the money comes from and try and find recurring sources of revenue.
StacDek helps companies design strategies that drive long-term growth.