Funding is the provision of resources to fund a need, program, or project. Funding sources include loans, venture capital, donations, grants, savings, subsidies, and taxes. There are two types of funding:
- Gentle financing
This type of funding includes donations, subsidies, and grants that have no immediate repayment obligation. It is also known as crowdfunding.
- Equity Crowdfunding
Equity crowdfunding is financing that enables the exchange of shares in a company for a capital investment via an online funding portal under the Startups Act.
Funds can be provided on a short-term or long-term basis.
purpose of promotion
Companies regularly look for funding. This funding can be for one of three reasons:
This is most commonly awarded in engineering or social sciences. Depending on the scope of the research or the project, this type of funding is awarded on a project, faculty or institute basis. Organizations that need such funding usually have to go through selection processes.
For starting a business or startup
Entrepreneurs with a business concept need the necessary resources, including capital, to venture into the market. The amount of financing required by these companies depends on the type of business.
This type of financing usually involves fund management companies that collect pools of money from various investors and use them to buy securities. These funds generate returns through asset diversification. The main purpose of these promotional activities is the pursuit of individual or organizational gain.
Stages of startup funding
A new business requires much more than a great idea. It takes dedication, discipline, hard work, and most importantly, financial resources to turn your great idea into a successful reality. As the business advances and grows, it may require funding for expansion and research, depending on the nature of the business. There are different stages of financing that address different needs at different stages of a growing business.
This is the idea phase. It is a time when the entrepreneur works to bring the idea to life. For this reason it is called the pre-seed phase. Typically, funding needs at this stage are small and there are very limited and mostly informal channels to raise funds.
- One way to raise capital is self-funding. This can be accomplished by drawing on personal savings or pawning or selling real estate for money.
- The more common method is borrowing friends or family members. The greatest advantage of this method is that there is an inherent level of trust between the entrepreneur and the investors.
- Another method is to win Prize money/scholarships/financial benefits provided by institutes or organizations running business plan competitions. Although not large, the amount of money is usually sufficient for the idea generation phase. The challenge is that the business plan has to be approved by the jury.
Seed capital is the investment made in the pre-foundation phase. This money helps the company identify and create its roadmap and the direction in which the company needs to grow. To that end, the money goes into identifying market needs, tastes and preferences, and then formulating a product or service. The seed funding is usually made out
- Bank or even Non-Banking Financial Companies (NBFCs) in the form of loans.
- Mentors, friends or family members.
- Angel Investor * inside
venture capital funding
This form of private equity financing is provided by venture capital firms to funds for start-ups and emerging companies that have high growth potential and demonstrated strong business acumen. Venture capital comes into play when the company’s products or services go to market. This is a growth phase that includes further rounds of financing.
Series A Funding
This is the first-ever round of VC funding, which will be used primarily for marketing, enhancing brand credibility, entering new markets and growing business. The potential investors for the Series A funding are:
- Super angel investors
- Venture capitalist
Series B Funding
When a company reaches the Series B funding stage, it means the product has found a market and there is potential for growth in other markets as well. This type of VC funding is used to hire more staff, improve infrastructure and expand the business beyond local borders. Potential investors for this type of financing are
- Venture capitalist
- Late-stage venture capitalist
Series C Funding
While there is no limit to the rounds of funding a company can obtain, this round of funding requires great caution for companies. The more investment rounds, the more equity the company releases. The potential investors for Series C funding are:
- Late-stage venture capitalist
- private equity company,
- hedge funds
Series D funding
This is a financing phase that is not very common for companies. This type of financing allows entrepreneurs to raise money for special situations such as a merger or when the company has not yet reached its growth goal. The potential investors in this financing are the same as the investors in the Series C financing.
Initial Public Offering (IPO)
Initial public offering is the process of making a company’s stock public for the first time. Growing startup companies often use this process to generate funds for expansion and growth. There is a special process for growing startups that decide to raise capital through the IPO route.
- The company must form an external IPO team composed of underwriters, attorneys, auditors and SEC professionals.
- Information about the company’s financial performance and its anticipated future operations must be compiled.
- An audit of the company’s financial statements must be conducted, which provides an opinion on its public offer.
- The company must then file its prospectus with the SEBI and set a specific date for the IPO.
Going public has a few other benefits besides raising funds for a growing company. These are:
- Additional funds can be generated through secondary offerings as the company already has access to public markets.
- A public company is a very attractive place to work and attracts better talent.
- Company executives may be partially compensated by shares.
- Mergers are easier for public organizations.
Aside from all the well-known funding methods, there are some lesser-known but quick ways to raise money for a startup. These methods may not work for everyone, but they depend on the type of business. These are:
- Product Presale: Companies like Apple and Samsung raised funds to continue operations by launching a pre-order campaign well ahead of the official product launch. It’s an often-overlooked and highly effective way to raise capital and improve cash flow.
- Sale of Assets: It’s a difficult move, but it’s effective for meeting short-term capital needs. These assets can be bought back once the company is out of trouble.
- Credit cards: This is not the most effective way, nor is it strongly recommended. However, it is one of the most readily available ways to finance a business. The credit can be continued with minimum deposits, but the interest and the costs on the cards can increase very quickly. Carrying on this debt can have a detrimental effect on the business owner’s creditworthiness in the long term.
The different stages of startup funding allow entrepreneurs to grow their businesses at every stage of their venture. This practice also allows them to identify the stage their company is in and which potential investors could fund them for expansion.
Also, this is a cyclical event as many startups that have successfully grown through funding can also become investors in other startups.
frequently asked Questions
What are the stages of funding?
The phases of start-up financing are:
- Pre-Seed Funding Phase
- seed funding phase
- Venture Capital Funding Stage (Series A, B, C and D)
- Initial Public Offering (IPO)
What is the pre-seed funding phase?
It is a time when the entrepreneur works to bring the idea to life. It is the idea generation phase, which is why it is known as the pre-seed phase. The most common sources of funding at this stage are self-funding, family and friends, or grants from certain institutions.
What is Late Stage Financing?
Late-stage financing is for companies that are past the ideation and product development stages and are making sales. Late-stage funding is raised by companies that are growing and offer investors tremendous growth potential.