Startup-Sutra-3: Where is the money?
Your company has zeroed in on a product or service; you have a nice team of young, fresh and energetic people who are raring to go, a cool company name and a thought after logo for the same. But, where is the money to start? This might or might not work with your pocket money or your dad being generous enough to increase your pocket money to experiment on something. Some actually do!!
Let us share some knowledge about finance, in a broader prospective, from which a young budding entrepreneur would want to start her business from.
- Seed Capital: This is little different from other finance you can look for when you are little confused or don’t know where to start. Some venture capitalists are happy to fund you; if you need some more time to organize your product or company. The amount is just enough to hire some people, do some research in the market, get your things organised and up and running.
- Startup capital: The things look settled now. At this stage you have a sample product in your kitty. You would have quit your job till now and urging your co-founder to quit his. Amount at this level is limited and rare to get, but once received can be used to finalize your product, recruit some more people, do some more market research and seek other communities to target for next phase of expansion and keep it aside, and finalizing the platform to launch your product for the market. So, use this amount judiciously and let this money speak for future investments.
- Major investments: You have covered a lot of ground since your first outing. Everything is working fine now and all the cogs and wheels are perfectly oiled. It’s time for some series of funding for venture capitalist, which can improve the efficiency of the company, bring more fire power to the team and expand your product to next phase.
- Series A funding: It’s the first major round of funding a company can receive from a venture capitalist. Generally you let your ownership get little dilute and offer some stakes to external investors. This might happen on the grounds of anti dilution provision.
- Series B funding: You have given some stakes to your investor who invested in you wholeheartedly and is thinking of high returns. They invest again or a new investor joins in. The money flows in and its time to expand your business. You can enter new markets, or if the plan is working you can break even at this stage, without going for one more round of funding.
- Series C funding and so on: The product looks amazing and you are still expanding and hence require more investment for the same. So you go for more rounds of financing. Investor will ask for more preferred stock or common stock in return of the investment.
Once you are on the boat which takes you to profit island, you are ready to payback your investor for their generosity and trust they showed in you. Or if an investor, after seeing you grow, feels like getting out of business, she will sell her stocks and get her money back depending on company’s valuation.
So go on, take your piggy banks and your plans to people whom you want money from. Stash your accounts with hot currency and start your journey of possibilities and job creation. #DiscoverNewInYou!Seeing the response for these articles, I feel like sharing some more information on this topic. Bonus articles coming up soon on Startup-Sutra; till then keep discovering something new!