Starting a new business is one of the significant dreams that most people have. They want to fulfill their dream, but they may step back and leave their wish ideal for several reasons. One of the primary reasons is insufficient capital to start and manage the business in the future.

This should not be the reason to leave your dream; there are several ways to get funding for your business. Different types of startup funding stages help you get funds for your business. For startup companies, funding will make a lot of difference. It helps you get more profits, and your business can get successful.

As you know, money is the whole core of any business. To raise money for your business, you must go through different startup funding stages to raise money for your business. If you want to grow your business and experience the change from having an idea to getting revenue profits, you should have sufficient capital for your business.

What are the Different Stages for a Startup Funding?

Different types of startup funding stages are available for funding. They are listed below:

1. Pre-Seed Stage:

This is the initial stage where a person tries to bring their idea into the startup company. This is known as the pre-seed stage. In this stage, you require fewer funds, so you must look for informal channels to raise funds. It would help if you got capital from family and friends, self-financing, or bootstrapping.

  • Funds Through Self-Financing or Bootstrapping: Bootstrapping a startup company means improving the business with less or no venture capital. It can also be from outside investment, which depends on your savings and the generating revenue to expand and operate.
  • Funds Through Family and Friends: This is also another great resource to get funds for your startup company. There is a benefit to obtaining funds from this resource; trust matters between the investors and entrepreneurs.

2. Validation: 

At this stage, an entrepreneur will be ready with a prototype, and you have to check the potential demand for the company’s service or product. This is known as POC (Proof Of Concept) and then comes the large-size market launch. This is also known as the seed stage.

Now, entrepreneurs have to do field trials and validate the product on some potential customers. Then after, you have to onboard mentors and should form a professional or formal team. In this stage, you should get funds from government loan schemes, incubators, crowdfunding, and angel investors.

3. Early Traction:

This is considered one of the vital startup fundraising stages. You will reach this stage when a company is capable enough to launch the services or products in the market. Here you can get different stages of venture capital financing. Some essential performance indicators include revenue, customer base, app downloads, etc.

This stage is also known as the series A stage, and the funds raised in this stage will be used for further growth of the product offerings and user base and for the new geographies. The most common sources to raise funds in this stage are banks or non-banking financial companies, stages of venture capital funds, and venture debt funds.

4. Scaling:

Here, entrepreneurs will add revenue and also increases efficiency. Different funding rounds are raised by an entrepreneur, such as series B, C, D & E. The standard funding stages for this stage include investment firms, private equity, and venture capital funds.

5. Exit Options:

Exits can offer significant capital to investors and entrepreneurs. While talking about the case of investors, they can pay back the money to venture capitalists (partners). And, if you consider the case of business angels, they will pay back the investors themselves. Generally, entrepreneurs and investors opt for the Initial Public Offering (IPO), Mergers & Acquisitions (M&A), buybacks, and selling of shares.

Conclusion:

These are the five different types of funding for startups. Read carefully and follow accordingly.