COVID-19 pandemic has created a unique situation before all of us which we never witnessed before. Global economies are facing serious crisis related to un-employment, sustainability in terms of small and medium enterprises and liquidity. Post COVID-19, there will be new ways of doing business, shifting of operations, adoption of technology and call for self-sufficiency will be the need of hour. New opportunities for STARTUP will come but with the main constraint of raising capital funding in these difficult times.
Startup Funding Cycle involves raising of funds at various stages that a startup goes through in its journey to become a mature company.
Once the startup idea or new opportunity is finalized, it needs capital, business plan, customers, suppliers, etc. to grow and survive. Capital funding requirements and sources are different at various stages of growth.
First Stage: At this stage funds are usually infused by founder himself and sometimes contributions from family & friends. Funds are utilized to setup a business structure and start the operations at lower level with low level risk and returns. Tapping into the close circle for funding saves time and cost of raising capital, both of which are crucial and scarce for founders of any new venture.
Second Stage: Once the funds are utilized to build the team and sustainable business model, next source of funding is required to be infused, and this comes from angel investors or networks or HNI’s. India has over 750 active angel investors which supports many new startups. At this stage founder has to partner with investors who can mentor him in addition to providing the capital. Guidance and mentorship are instrumental in the journey of scaling up a business from this stage.
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Third Stage: As the business starts taking a concrete shape after surviving the initial challenges, it is time to raise the next round of funding. Capital requirements increase manifold as it is time for the business to grow exponentially. Startup needs to approach Venture Capital (VC) institutional investors. They usually invest in early stage companies and can bring many things in addition to providing capital including strategic guidance, international connections, framework for rapid scalability, corporate governance, etc. At this stage startup should have a solid, stable team and a structure in place. It should have some steady revenue sources and a roadmap for the next stage of growth.
Forth Stage: As the business grows further, it needs to explore geographical expansion or some allied revenue streams. As the business model matures and becomes sustainable, further rounds of capital come from Private Equity (PE) funds that typically invest in more mature business compared to VCs. They provide the necessary growth capital to companies for expansion and eventually help them tap the public markets through an IPO.
Startup investments have become an interesting alternative and investors are showing keen interest to be part of these journeys.