So, startups and funding stages – it seems that every second headline about startups somehow is about money. Somewhere, someone – again – has secured a fat investment, something with seven figures and in dollars. Using the infographic below, we’ll explain detail which funding stages startups ideally go through.
Funding Stages Step by Step
The start of every startups is an idea. In most cases, the money to make that idea reality is missing. Which is why the first investments usually come from the founder’s friends or relatives. The figure below describes these early backers as FFF (friends, family, fools). There are several complimentary terms for this very early stage – early stage, obviously, while pre-seed refers to the period of time before the first professional stage of funding happens.
Apart from these friends and relatives, there are also more official ways of securing funding, e.g., grants for students or startup competitions offering prize money. These competitions have the added advantage of giving you a stage to attract some attention.
For example, the attention of business angels – wealthy and experienced individuals who support aspiring founders with money and know-how in exchange for a share of the profits. At this stage, the seed for success is planted, which is why it is is referred to as seed funding. Both as an addition and an alternative, there are public grant programs such as the German Federal Ministry for Economic Affairs and Energy’s EXIST program.
Once a startup has cleared these first stages, which in reality might take months or years, it reaches the growth stage. This stage requires larger capital and consequently requires new and bigger players.
The most important of those are venture capital firms which are specialized in funding aspiring companies and create (private equity) funds for that purpose which might quickly be worth hundreds of millions. Quite often, several VC firms cooperate to minimize the risk for all parties involved – these investments are usually risky ventures.
These funding stages, which usually follow after a seed investment, are called series A, series B etc. and often create big headlines. Family Offices are usually far more discreet. These are privately held investment and wealth management firms who provide financial services for wealthy families. So far, there has not been much interplay between family offices and startups but this could change when considering how low the interest rates are and how popular the whole startup world is becoming.
Another, additional method of financing is the venture loan – a special kind of bullet bond which is often used to bridge the time between two funding stages. The later stage involves big established companies (marked as corporate investment in the infographic) which might take an interest in the startup and want to profit from that startup spirit. Ultimately, this can lead to a takover or an exit for the stakeholders that were so far involved in the startup. So, now we really have covered all possible startup stages.
So, how do the funding stages work now?
Value Desk co-founder Dennis has some valuable insights about funding stages based on the experiences he made with his successful startup.