The Funding Stages of Small Businesses Explained

Start-ups are known to flaunt their successes with raising funding , as it goes to show the value of their products and services. But what exactly are these Series A funding rounds and seed capital? Small businesses should know the terminology today, as the race to find the next unicorn heats up.

The earliest funding round one can think of is when money is received or invested with no returns in sight. This is the Pre-seeding funding, and is given to simply get a new venture up and going. There is no exchange of equity. The fund can come from one’s own resources as a way to bootstrap the business. It is also the stage where nearly a third of startups fail, as they don’t have enough resources to continue with their operations.

The seed capital round infuses a new life into a startup. The first investment based on presentations, research and discussions, the seed capital round can be a loan, or derived from one’s own network of family and friends.

Angel investing is another way to kickstart a business. Angel investors are rich individuals looking to park their money in promising ideas and ventures for future returns. The loan give can be converted to stocks, and family and friends too can participate. After this round, a business can go ahead with its operations and start earning revenue.

Venture capital rounds (represented by Series A, B, C, etc) enter the middle stage in the evolution of a business. The idea has been validated, and this is the time to scale up and expand. Profitability isn’t strictly a criteria. Each series round has its own way to value the business. This is also the stage where a business can get a business line of credit or look for strategic investors.

The last stage is when the big IPO is scheduled to take the company public. Other options include acquiring competitions or management buyout with bridge funding. The IPO is set into strategic motion by investment bankers.

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