It’s the ultimate entrepreneurial dream – be your own boss, start your own company and make money doing what you love. Inspired by stories of Silicon Valley success, Australia’s startup scene is flourishing, with no shortage of new ventures and innovative ideas. That said, getting your big business break requires more than just a good idea – It takes careful planning, a broad network and most importantly, a healthy stream of startup funding.
With support from an investor or financial backers, you don’t have to be a millionaire to make your startup dream a reality.
Here’s a breakdown of the different stages of start-up funding so you can get your journey started:
Read more: How to Plan for Business Growth.
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Seed Round: finding angel investors
The ‘seed round’ is the preliminary round of investment for a startup in its conceptual stage. It’s speculative but can help by providing necessary investment to progress a startup.Capital at this stage is provided by individuals referred to as ‘angel investors’, ‘business angels’ or ‘seed investors’.
They help launch startups or entrepreneurs in exchange for ownership or convertible debt.
The capital can be a one-time investment, or consist of ongoing funds to carry a business through its early stages. Angel investors may consider opportunities for a startup’s initial public offering, acquisition or exit strategy.
With a high degree of uncertainty attached to startup funding, angel investors often secure ownership equity or convertible debt in exchange, but continue to provide the capital investment that startups are unlikely to attain from banks.
The seed round is best placed to identify any potential concerns with an idea. If successful, this will provide a small investment for a startup to take its first steps in producing a working prototype.
Some startups have a prototype of infrastructure in place, meaning a seed round may not be necessary.
Businesses that raise capital from a seed round can invest money to cement the type of product or service to develop, conduct research within a marketplace, identify specific demographics to target, or to hire a team prior to launch.
To raise funding in the seed round, startups can use crowdfunding, either reward-based or equity-based, where equity is provided in return for investors.
Regulation for crowdfunding can differ for startups across the globe – in Australia, crowd-sourced funding is regulated by the Australian Securities and Investments Commission (ASIC) and should be consulted before engaging with crowdfunding.
Series A funding: Launch and Learn
Startups that progress to this funding stage have an advanced prototype, and have cemented their product’s purpose. With a larger pool of funding than the seed round, startups can seek three to seven million dollars of investment in series A funding from Venture Capitalists.
Venture capitalists support startups that are looking to expand, but lack the access and investment to enter an equity market. They’re likely to take a risk and invest in a startup, with the anticipation that it will generate higher returns on their investment.
Investments acquired in series A funding can assist a product’s launch in the market, and help define the best distribution channels, identify new markets and fine-tune business models for the products or service.
Capital can also help define business goals, redefine sales targets or accompany the launch of a new product.
Series B funding: Expand to new horizons
This stage in startup funding can attract up to $50 million in investment, to truly support establishing a business.
By the series B stage, a product roadmap and business model should clearly demonstrate how the product will expand into a broader market. Investors will look for scalability – strong management in production, active marketing activities and an established user base.
The investment in series B funding can accelerate new team hires, potential acquisitions or mergers and chances to expand into the global market.
Series C funding: Accelerate the growth
Reaching the series C stage of funding is an indication of a business’ maturity and profitability. Unlike the earlier rounds of investment, series C invites investment banks and Venture Capital firms to contribute to the business’ upcoming IPO or acquisition plan.
Series C funding can attract hundreds of millions in capital to accelerate plans to launch in new markets and platforms.
Shoot for the stars
The startup funding process is not as linear as expected and the sky’s the limit for the number of investment rounds a startup pursues. The progression of capital raising can shift depending on the product and the business.
There is also a potential for investors to have misaligned expectations for each round so ensure any communication is always clear and seek assistance when necessary.
Always have a growth strategy and product development in place to attract the right kind of investors and secure your startup’s long-term success.
If you enjoyed this article, check out another one like How to Watch Your Burn Rate as a Startup.