It’s the ultimate entrepreneurial dream: be your own boss, start your own company, and make money doing what you love.
Inspired by stories of Silicon Valley success, Australia’s startup scene is flourishing, with no shortage of new ventures and innovative ideas. That said, getting your big business break requires more than just a good idea. It takes careful planning, a broad network, and most importantly, a healthy stream of startup funding.
With support from an investor or financial backers, you don’t have to be a millionaire to make your startup dream a reality. Here’s a breakdown of the different stages of startup funding so you can get your journey started.
Read more: How to Plan for Business Growth
Seed round: Finding angel investors
The ‘seed round’ is the preliminary round of investment for startup funding in its conceptual stage. It’s speculative but can help by providing necessary investment to get a startup on its feet. Capital is provided by individuals that are usually referred to as ‘angel investors’, ‘business angels’, or ‘seed investors’.
These people help launch startups or entrepreneurs in exchange for ownership or convertible debt. The capital they offer can be a one-time investment, or be made up of a series of funds to carry the startup through its early stages.
Angel investors might consider opportunities for a startup’s initial public offering, acquisition, or exit strategy. Given the high degree of uncertainty involved with startup funding, angel investors sometimes secure ownership equity or convertible debt in exchange, but continue to provide the capital investment that startups are unlikely to get from banks.
The seed round is mostly there to work out any potential problems with an idea. If this round is successful, it will provide a small investment for a startup to take its first steps in producing a working prototype.
Some startups have a prototype of infrastructure in place, meaning a seed round might not be needed. Businesses that raise capital from a seed round can invest money to cement the type of product or service to develop, conduct research within a marketplace, identify specific demographics to target, or to hire a team prior to launch.
To raise funding in the seed round, startups can use crowdfunding, either reward-based or equity-based, where equity is provided in return for investors.
Regulation for crowdfunding can look different for startups across the globe. In Australia, crowd-sourced funding is regulated by the Australian Securities and Investments Commission (ASIC), which means they need to be consulted before engaging with crowdfunding.
Some great places to seek seed funding are pitch competitions such as StartCon or Spark Festival.
Series A funding: Launch and learn
Startups that progress to this funding stage have an advanced prototype, and have cemented their product’s purpose. With a larger pool of funding than the seed round, startups can seek three to seven million dollars of investment in series A funding from venture capitalists.
Venture capitalists support startups that are looking to expand, but lack the access and investment to enter an equity market. They’re likely to take a risk and invest in a startup, with the idea that it will generate higher returns on their investment.
Investments acquired in series A funding can assist a product’s launch in the market, and help define the best distribution channels, identify new markets, and fine-tune business models for the products or service.
Capital can also help define business goals, redefine sales targets, or accompany the launch of a new product.
Series B funding: Expand to new horizons
By the series B stage, a product roadmap and business model should clearly demonstrate how the product will expand into a broader market. This stage in startup funding can attract up to $50 million in investment, to truly support establishing a business.
Investors will look for scalability — strong management in production, active marketing activities, and an established user base. The investment in series B funding can accelerate new team hires, potential acquisitions or mergers, and chances to expand into the global market.
Read more: 5 Common Mistakes Startups Make In Structuring For Scale
Series C funding: Accelerate the growth
Reaching the series C stage of funding is an indication of a business’ maturity and profitability. Unlike the earlier rounds of investment, series C invites investment banks and venture capital firms to contribute to the business’ upcoming IPO or acquisition plan.
Series C funding can attract millions in capital to accelerate plans to launch in new markets and platforms.
The sky’s the limit
The startup funding process is not as linear as it sounds and the sky’s the limit for the number of investment rounds a startup pursues. The progression of capital raising can shift depending on the product and the business. There’s also a potential for investors to have misaligned expectations for each round, so ensure any communication is always clear and seek assistance when necessary.
Always have a growth strategy and product development in place to attract the right kind of investors and secure your startup’s long-term success.
