During its life cycle, startups may need several stages to raise capital and attract capital. The question that is often asked is what are the stages of attracting capital for a startup and what are the stages that startups go through during their life cycle. In this article, we have tried to present these steps as simply as possible.
Fundraising in the pre-seed stage for startups
The first stage of startup maturity is where capital is attracted and founders can use it to raise and test the initial product of their business. According to international reports, the probability of failure at this stage is very high, and it is very difficult for venture capitalists to identify a successful and promising startup from a startup that will fail. The providers of capital required by a startup at this stage are often one of the following:
- The so-called FFF group, which consists of family, friends, and idiots, are risk averse people who want to take big risks with little money in the hope that they will get big returns in the distant future. Indeed, at this stage, the investment risks are so high that few investors want to invest their money, even if it is small, in a startup with a very high probability of failure. This is why the trust factor is highlighted and the people closest to the startup founder(s) are willing to gamble on the distant dreams of the entrepreneurial team. In fact, the capital attracted at this point is more love money than smart money.
- Well-minded investors or business angels (business corners), who are often successful entrepreneurs who have left their businesses and, of course, are experts in this particular field and, knowing this area and its future, invest in startups that are the best in their opinion, they invest. Money injected by well-intentioned investors or business owners is smarter than the previous source explained.
- Accelerators: They are the institutions that invest systematically and of course in various fields of business and start-up companies in the pre-establishment stage and by setting up the appropriate work environment, office facilities, equipment and of course advice and guidance, with qualitative evaluation, they own part of the startup shares. As is known, the startup evaluation at this stage is qualitative, relative, and not highly accurate.
The incorporation stage and tips for attracting investors at this stage
After startups attract the capital they need in the pre-establishment stage, raise their initial product, and possibly make the first sales of their products or services, they can enter into negotiations with investors at this stage to attract capital in the initial stage. At this point, startups are often in the valley of death and trying to increase their income and most importantly create traction by increasing the fit of their product to the market.
Sources of funding for startups at this stage are one of the following:
- Well-minded investors or business angels (business corners) with higher pre-seed check sizes tend to invest in startups with lower risk (compared to pre-seed).
- Crowdfunding or crowdfunding platforms where small and diversified investors inject small capital into startup companies with the aim of investing or doing charitable work in line with their social responsibility.
- Venture capital funds and companies (CV Funds / VC Firms) with low ticket volume, which tend to participate in the initial growth of the business and reduce investment risks by injecting small amounts of capital, and disposing of various options.
Attracting startup capital in the first stage (round A)
At this stage, startups usually adapt their products to the market and business growth potential is more or less visible. Funding at this stage is done for business advertising and marketing, and startups are trying to gain more market share.
Although, at this point, well-intentioned investors or business sponsors who also operate in higher-brand volumes are one of the providers of the capital that startups need; However, venture capital funds and companies are the most important sources of funding for startup companies, which can connect the startup to its network of connections by injecting the capital it needs and facilitating the conditions for entering the market and increasing the market share as much as possible.
Phase II (Round B)
At this stage, the startup company has adapted its product to the market and has identified the growth lever(s) and seeks to maintain its accelerated growth and business development by attracting more capital. Most of the capital attracted at this stage will be spent on advertising, marketing and human resources, and the focus is on increasing market share. Since sales records are clear and the startup’s target market is identified, the startup’s valuation will be more accurate and possibly fairer. Funds and venture capital firms continue to be the source of funding.
Tips for attracting capital in stage 3 and above (round C+)
In the third and higher stages, the startup raises capital in order to stabilize its market position and (if possible) to increase its market share. The strategy of most startups at this stage is aggressive and either tries to marginalize their competitors or become even more unattainable than before by buying and merging smaller startups and linking them to their value chain.
In these stages (late stages), startup risks are greatly reduced and large financial institutions are also encouraged to join the company’s shareholders. Institutions such as private equity (PE) companies, pension funds, hedge funds, hedge funds, etc. Given the constant activity of the business prior to these stages, most of the financial statements are sufficient to be able to evaluate the startup company with high accuracy.
After these stages, the startup has reached maturity and in a manner arguably reached the highest possible valuation and will most likely test entering the public markets by looking at the policies.
The process of preparing the necessary documents to attract capital
A monotonous group of analysts with years of experience in the field of preparing documents necessary for attracting capital, in the whole process of preparing documents including financial model and cash flow forecast file, valuation analysis report and offer file for investors (Pichdak) and designing optimal scenarios for attracting capital, in addition to It is enough to register your investment advice request here, wait for a monotonous expert call and get your first free consultation session, in order to make the best decision for your business.
(1) An online meeting with the business founders
- Explain the employer’s needs, concerns, and uncertainties in the document preparation process
- Familiarize yourself with the business model, activity records, attracting capital, and business development plans
- Explain the steps of project implementation and the necessary meetings to verify the results at each stage
(ii) Financial modeling and compiling a cash flow forecast profile
- Model business revenue and cost records based on historical performance data
- Sales funnel modeling and business development plans as well as market share development strategies
- Forecast revenues and expenses for the next three to five years and estimate the amount of capital required by the company
(3) Business valuation in an environment of uncertainty
- Estimating the fair value of the enterprise according to the data obtained from the financial modeling
- Validate the results obtained from the evaluation on the basis of real data and current conventions of the venture capital ecosystem.
- Anticipating potential challenges in attracting capital and designing optimal scenarios that can be presented to investors
(4) Investment advice and presentation training to investors
- Designing the offer file for the investor according to the data obtained from financial modeling and valuation
- Simulate an investor pitch session and examine strengths and points for improvement in the founders’ pitch
- Definition of capital owners according to the size of the studied check to attract capital and evaluate the offers received from them
What is important in attracting capital for startups is the documents provided to foreign investors. For the preparation of fundraising documents, startups can use foreign companies and outsource. to treat Preparing the necessary documents to attract capital in the subsidiariesBased on years of experience, it has been designed in such a way as to take into account at the same time all aspects necessary for the preparation of fundraising track documentation; It puts the least stress on the business owner in terms of document preparation conflicts, and eventually the company can start the fundraising process. quickly do it.
What should business founders consider after preparing the necessary documents to attract capital; Choosing a financing model And the Design different fundraising scenarios he is. In this regard, optimally suitable options for negotiation are listed and necessary documents are prepared based on their considerations. Finally, again the negotiation process to attract capital easier will be
