Phases of Financing A Startup

by Lton M. Apprentice

The necessary evolution of entrepreneurship in different countries means that starting your own business requires less investment than before and implies a more organized process. This is revealed in the financing phases of a startup, which resemble the growth of a company. For this reason, today you can count on different ways to business startup.

Pre-seed capital

At this time, you develop the idea you want to launch without having an established business plan. Since you do not have a minimum viable product, this stage is characterized by forming the work team, imposing legal agreements between partners (if there is more than one), studying the impact on the market and looking for the best startup founder equity.

Incubators or startup accelerators: These companies serve to give you development capital and technical assistance on the implementation of the business model. For a small participation, they also offer you work facilities to boost the financing stages of a startup.

Business Angels: Business angels can be individuals or groups of investors who are dedicated to pumping money into startups. It is not common for them to participate in the management of the venture, for which they only offer their experience or advice and assist in the creation of the first versions of the service or product.

FFF (Family, Friends & Fools): Going to family, friends and other contacts interested in your idea comes naturally. You will have to convince them to invest in your project, since they may not be sure that you have a successful product in hand. It is a risk for both because the results, if everything goes well, will take time to arrive.

Regarding the above, it must be understood that, during the first year of life, your venture will only generate losses. This circumstance, known as the valley of death, is distinguished by ending 90% of its own businesses. In fact, only 5% of startups manage to reach 2 years to continue with their evolution.

Grow Capital

Within the financing phases of a startup, growth comes when certain favorable conditions are given. That is, you have a loyal clientele, the numbers are positive and you have a product or service adjusted to the market where you operate. It is a time of maturity in which you have a proven training and a clear strategy to continue evolving.

In this stage of financing for startups, you will still require startup equity calculator for external help to guarantee good cash flow. This will allow you to continue improving the product or service, the processes and the business model. In addition, it is a good opportunity to increase the staff with human talent in strategic positions.

In summary

Knowing how a startup is financed gives you a clear perspective of the path you must travel when you want to start. In theory it looks simpler than it really is in practice, something proven by the multiple failures for these experiences. That is why you should take the financing cycle of a startup seriously and with commitment.

As a warning, not every entrepreneur has the tools and skills to complete the financing stages of a startup. If you get to the early stage and then transcend the growth stage, you could take it as a triumph. The journey from conceiving the idea to materializing it is usually very arduous, however, it can be full of rewards for those involved.

Similarly, you can explore various options until you find the best way to finance a startup. You can rely on banks, especially for the support promoted by La Caixa. In Europe, you can make use of the 7th Framework Program, which is linked to different universities. Finding money is not your biggest concern today, as there are plenty of options to start the business you've always dreamed.