Funding phases for startups

On Behalf of | Aug 5, 2020 | Business Formation |

Entrepreneurs looking to get new ventures off the ground know that they need money to make it happen. Most businesses require external investments to provide sufficient support when starting out.

Understanding the various stages of fundraising for a startup is important for anyone about to embark on this process.

Pre-seed and seed rounds

As explained by Crunchbase, an initial pre-seed round may frequently be funded by the business owner’s own investment. The focus for the business at this stage may include organizing the business plan in preparation for subsequent funding rounds.

Forbes indicates that angel investors may well fund the next round, the seed round, during which further refinement of the product or service offering occurs. Angel investors may also provide input, guidance and business connections to entrepreneurs.

Stage A funding and beyond

Once a business readies for market, a stage A fundraising round may occur. Capital from this round may come from venture capitalists and the expected outcome is profitability as quickly as possible. Venture capitalists offer larger investments than angel investors to drive this. A venture capital firm may also provide a level of credibility to a growing business. Once the company begins to return a profit, growth may be fueled by a stage B round of fundraising.

Companies that generate sizeable revenues may move eventually to stage C or possibly stage D fundraising rounds, referred to as late-stage funding. In these scenarios, a business may be pursuing the move to a public company via an initial public offering. The business must demonstrate a history of proven success by these stages.