Your Gambit

As a startup with an idea, it is obvious that you’re going to need funds and it could be at any stage depending on the product or service. Normally a tech-based startup is research and development heavy at the beginning, it would also be heavy spending on the number of prototypes and testing that take place to launch a product that is ready for the consumer to use.

Let’s take a quick look at the stages of a Startup’s Life:-

1. Ideation called as a Pre-seed Stage
2. Validation called as a Seed Stage
3. Early Traction called as Series A
4. Scaling called as Series B, Series C, Series D & Series E
5. Exit options

Ideation or the pre-seed stage is when an entrepreneur has an Idea and is working on how to bring it to the market. Depending on the idea and it’s complexities the funding amounts may be small to medium and the funding sources may be limited and informal.

1. Bootstrapping: Founder’s use their own savings as part of an investment in to an idea.
2. Friends and Family
3. Presenting a business plan at pitching events where prize money or grants are to be distributed.

The validation or the seed stage is the pre-revenue stage where you may have your prototype ready and now you need to test and see the demand for it. Ideally in the seed stage, startups look to onboard mentors and build teams. Funds would be required for mild hiring and soft launches.

1. Startup Incubators:- These are mentorship programs and some incubators also provide funding.
2. Angel Investors:- Normally a very wealthy person with a high-risk appetite willing to take a chance on a startup.
3. Crowd funding, a large group of people who can typically contribute small amounts. This would normally be the potential customers who believe in a particular cause.
4. Government loans, usually to promote a startup environment and to promote its growth the government may provide collateral free loans to startups.

The Early Traction stage is after the product is launched in the market and has some demand and data backing it up, like revenue, repeat customers, app downloads, and more.

1. Venture Capital Funding:- In this option the entrepreneur dilutes a part of their equity for funds and mentorship.
2. Non-Banking Financial Institutions:- This source of funding is usually preferred when an entrepreneur doesn’t want to dilute their share and the debt-financing is normally given when the entrepreneur has some proof to pay back and clear interest rates.
3. Venture debt funds:- These are typically invested with angel or VC rounds.

Scaling Stage, is normally when a startup is performing well and is maintaining a consistent revenue. The startup may require funding for moving past break-even point or stagnancy in revenue. Funding may be required for expansion, marketing, hiring more people. These startups in some case like series C, D and E are considered late-stage. There are two common funding sources:

1. Venture Capital Funds
2. Private Equity or Investment Firms

Exit Stage is normally when a founder or an investor wishes to leave the startup that may or may not be performing well and generating good revenue or when some investors may want to sell their share for Profit on their original Investment. Sometimes exit options are also available for startup that may have a good brand name, product and for a list of reasons may want to use an exit strategy for further expansion or closing down.

1. Mergers and Acquisitions:- Sometimes founders may be offered a better deal through Mergers or Acquisitions for their Brand name and product which may be 2-3x their current revenue. Mergers and acquisitions may be done in part or in whole.
2. IPO:- Initial Public Offering is when a startup lists their stock on Stock exchange board opening their shares to the general public.
3. Selling Shares:- Investors may want to sell a part of their share to other investors or VCs.
4. Buyback of shares: Founders may buyback their shares from the various investors depending on their liquidity and if they wish to regain ownership of their company.