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All You Need to Know About Start-up Funding Rounds

If you are an entrepreneur looking to grow and scale, you might need to look into financing your start-up.

Once valued for their rarity, unicorns have grown more commonplace as investors are making more deals, funding of start-ups are more readily available, and the exit market has improved.

Most successful start-ups have undertaken efforts to raise capital through several rounds of external funding. As a result, the global venture capital funding in the first half of 2021 reached record highs with over $288 billion in global investment, as per Crunchbase.

In this article, we discuss more about start-up funding rounds.

What Does a Startup Funding Round Mean?

A funding round is a way of financing a business’s growth and sustaining momentum. Venture capital, crowdfunding, or angel investing are some of the opportunities to support a pioneering spirit.

A start-up might require funds for the following needs: 

  • Marketing and sales
  • Product development
  • Prototype creation
  • Hiring people
  • Legal & consulting services
  • Office space

According to the development stage of your start-up, you have different stages of the startup funding round. Let’s have a look at them:

1. Pre-seed round

It all starts with an idea. In a pre-seed round, you reach out to people with a bare skeleton — your vision. This funding can be anything from building an outright team to developing a product to get that first push of early adopters. This could mean:

  • You have an idea with some utility, or you are in the process of building out the most minimally viable product (MVP).
  • You have differentiated a market opportunity.
  • You need to hire people with some operational experience and start from the ground level.
  • Your idea costs a significant amount of money in the process of finding some product-market fit.

Many times, this could lead to convertible notes, which is a loan that converts into equity.

Pre-seed rounds usually consist of friends and family, crowdfunding, public grant, and accelerators. It could also mean bootstrapping, where you maximize the consumption of available resources without any external fund.

2. Seed Round

Seed round is an investment made when a start-up has been established. It could be the first investment from external investors like business angels.

At this stage, you have figured out a good product-market fit and are looking to scale up to total market production. The funding usually covers meeting more orders and higher costs.

3. Series Funding

As you move on to series funding, you prepare for considerable scale growth and raise more finance. At this stage, you may have a full-fledged finished product or service for public sale. This could also cover growth costs like international launch or marketing to reach a broader customer base.

The Multiple Rounds of Series Funding

There can be multiple rounds of series funding. Let’s have a look at them:

1. Series A 

You have made progress on an established user base at this point in your start-up’s journey and have developed a repeatable and scalable product. This is where the Series A funding round comes in; investors look at industry-relevant KPIs and excellent execution.

The investors at this stage include more traditional venture firms where a prominent VC or corporate venture arm can extend an offer. The dilution in such instances is typically greater than 20%.

2. Series B

If you get to Series B, your start-up is relatively mature with increasing revenue and user base. This stage usually features the same investors as Series A while also attracting new VC firms associated with late-stage investments.

For you, this stage could finance new growth opportunities like tapping into new niche markets. For potential investors, this demonstrates good value in your company with impressive yields in the form of capital gains or annual shareholder dividends.

To get into this stage of funding round, you require to show your potential investors an accurate valuation for your company by estimating your current assets and other data.

Read more: A Founder’s Guide to Valuation Certificates 

3. Series C and beyond

Series C funding is an important stage for successful start-ups to cover late-stage costs or go for an acquisition. This round could also be a precursor for an initial public offering (IPO). This funding round appeals to large institutional investors like investment bankers and private equity funds, injecting capital to mature businesses.

As a founder, you get more control over how you spend the money. You can go for subsequent Series D and E funding rounds if you have more equity left in your business.

How Can trica Help?

trica is a tech platform for startups and investors to manage equity, invest in tech disruptors and create wealth and value. We help you digitize your investor communication and manage round modeling.

Over 350 IPO-ready companies like Mobkiwik, Snapdeal, Wildcraft, Fi, Delhivery, KhataBook. HomeLane, among others, uses trica’s cap table & ESOP management products.

If you are a start-up founder, feel free to contact us to know more.

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