Funding Stages
From start-up to IPO there are usually several funding stages. While some of these stages may be skipped, the full spectrum includes seed financing, Angel Investments, Series A and B, and in some cases Pre-IPO financing on to the IPO. Note that this is a guide and not a comprehensive list. More recently online platforms offering access to crowd funding could play a part in your businesses’ funding journey. Seed funding is often provided by early-stage investors which may include the founder, friends and family. This initial round of funding is used to firm up the business model, market research, product development, the initial team, to develop minimum viable products (“MVP”).
Angel investors become involved in the early stages of the business. They often provide funding, support to scale and grow the business. They can be a source for mentorship and industry connections.
Angel investors are high-net-worth individuals or groups and their investment is usually in exchange for equity. In some cases they may offer debt with a convertible option. Angel investments may have investment niches. In building a pool of potential angel investors, knowing their niche would be of benefit to your business and the investment group.
Series A and B differ only in terms of size and expected usage of funds. Series A is usually once the startup has developed its offering and is generating revenue. The funds are then used to scale and expand the team and operations, marketing and additional offering development. Venture Capitalists usually provide Series A funding in exchange for equity.Series B, C, D, etc., usually involve larger VCs and institutional investors. These funds are expected to accelerate growth, build infrastructure, expand R&D and customer acquisition. Once the model is proven and generating solid growth and EBITDA, there may be need for additional pre-IPO financing to bolster the balance sheet, improve market presence and IPO readiness. Private Equity firms become involved at this this stage. That positions the business for its IPO: