A Startup company is a new business that is potentially fast growing and aims to fill a hole in the marketplace by developing and offering a new and unique product, process, or service but is still overcoming problems. Startup companies need to receive various types of funding in order to rapidly develop a business from their initial business model that they can grow and build up.

Funding Stages:

According to a recent study, over 94% of new businesses fail during first year of operation. Lack of funding turns to be one of the common reasons. Money is the bloodline of any business. The long painstaking yet exciting journey from the idea to revenue generating business needs a fuel named capital. That’s why, at almost every stage of the business, entrepreneurs find themselves asking – How do I finance my startup? Usual funding stages are:

1. Seed Funding:

Initial Investment:
  • Usually from people known to the business owner
  • Also from someone not known to the founder, called an “Angel Investor”, to whom seed capital is often given in exchange for a percentage of the equity of the business.

2. Round A Funding:

When the startup has launched its product commercially, Venture capitalist firms get involved and Round A Funding is used to:
  • To establish a product in the market and take business to next level
  • To make up the shortfall of the startup not yet being profitable.

3. Round B Funding:

When the startup needs to expand, either with staff growth, new markets or acquisitions

4. Debt Funding:

When a startup is fully established, it can raise money through a loan or debt that it will pay back, such as venture debt, or lines of credit from a bank.

5. Bridge Loans:

Short term debt acquired to finance IPO, LBO, paid back with the proceeds of the Initial Public Offering (IPO) or Leveraged Buyout (LBO)

6. Leveraged Buyout (LBO):

A leveraged buyout is the acquisition of another company using a significant amount of borrowed money in the form of bonds or loans, to meet the cost of acquisition. 

7. Initial Public Offering (IPO):

An initial public offering (IPO) is when the shares of a company are sold on a public stock exchange, where anyone can invest in the business.

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