The common questions over which the Startups frequently ponder are about how to fund your startups and how to raise rounds of investment. Every startup has its own story and funding is a key for any startups, as this helps you to achieve various goals for your company, starting from building the team, to marketing your product and technology advancement. So, here are the stages that you help you fulfil your startup dreams.
Stage 1 (Self-Investment)
To begin with, lets assume that you have an awesome idea of starting an e-commence business. Your and your friend decides to pursue this dream and start a company. The skill-sets that you both have are complimentary to each other. One being a technical expert and other having business acumen. You both decide to be equal share holders of the company that you are about to form with 50-50 Initial Equity Distribution in a startup.
Lets take into consideration that you both decide to start without taking any loan, as you don’t have to have any liability of giving back the money to someone. So, considering that you both plan to start with 10,000 shares which equals to 5000 shares for you, and 5000 shares for your friend. To start a company you would need a team, and technology advancement along with marketing funds and that’s when you plan to raise money, and the concept of investment comes into picture.
Stage 2 (Angel Round)
The next stage in your company is when you approach an angel investor and present him the capabilities of your company and product and the market opportunity that it brings. The angel investor might be a successful entrepreneur or a person who can invest money at his personal level in your startup.
If the angel investor is convinced with your ideas he will be ready to put in money. So, the next discussion will revolve around negotiations on what he will get in return for the investment made. The process is called “Valuation”.
You need to come up with a “Pre-Money Valuation” of your company before you get the investment. So let’s assume, that the Pre-Money Valuation of your company is INR 1.8 crores. You might need INR 20 lakhs for building basic product and get your first 100 customers on board, so to achieve that you will be hiring your team, and the required infrastructure. As members of the board of the company, you will issue shares.
Stage 3 (Venture Capital Seed Round)
You work hard to build a product, do the sales and get the customers with the help of the Angel investment. And, now you need more money for your startups expansion. Now, that your company has better product, more sales, so the valuation of your company will increase. This leads you to approach Venture Capitalists. They are the group who gives you money in return for the stake in the company but in later state and larger scale. Startup investment is always great but riskier as well.