Startup Fundraising Phases Explained

Fundraising is an important part of many businesses. If you don’t have the money to bankroll your new venture, you need investors. Finding investors and funding for your business or idea takes time and works in phases. You can align these phases with the stages of your business’ development. Meet Innov has attended many workshops on fundraising and we also know quite a few successful businesses that started out with fundraising.

What do investors want to know?

  1. What your company does or what the idea is that you want to develop.
  2. What problem will be solved or what need will be fulfilled with the product or service.
  3. The type of technology involved.
  4. Market research and market opportunity.
  5. Explanation of why consumers will buy and enjoy the product or service.

The Phases of Fundraising

The phases of fundraising align with the milestones of a company or its development.

  1. Seed Money

Seed money refers to the funds you need to start the business or get the production of a product underway. This is the first phase and often the company does not yet have a working prototype or any evidence or proof that it will work. You have to sell the concept.

  1. Round 2

This is where you have a working prototype or some other proof that your company has merit and that your product will work. Companies who have gone through the initial phase without funding may skip the seed round and start talking to investors only at this stage.

  1. Round 3

At this point, you have a working product, a thorough business plan and everything in place to move further. When you get to this point, investors are approached to help fund the process of taking the product to a broader market. The investment amount will be larger than the with the previous two rounds.

  1. Round 4

When you reach this point, your company has gone far already. You will now seek investments to help you go international or to expand your product range or develop a new idea. In some instances, if a company is really successful, the company will be bought by investors or larger corporations. It all depends on the direction in which you as the company owner wants to go.

Funds in all of these rounds will have to include operational costs, marketing costs, and overheads. It is important that your business plan and financial projections keep this in mind and that you also include a buffer.

As you can see, fundraising and partnering with investors is not something that takes a few weeks or months. These processes can take years and it is important that you establish a good relationship with your investors. Learn more about how to approach investors here.

Infographic by: fundersandfounders.com

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