Funding is one of the key factors for startups and MSMEs (Micro, Small & Medium Enterprises) in order to accelerate their business and grow into established companies. Although they have different characteristics, startups are more businesses that have scalable potential, but usually do not necessarily have income. On the other hand, MSMEs have income, but generally are not scalable. Both usually do not have the ability to reach or obtain funding.
Types of Startup Funding
Let’s get to know more about the types of startup funding as follows:
Early Stage Startup Funding
This funding stage is carried out when a new startup is being built. The company’s sources of funds during the initial growth period consisted of the following stages:
If you, the founder of a startup company, use your personal funds, this is usually called a bootstrap. Without other investors, founders can still change the business model and determine the direction of product development in order to achieve the vision they want. This method is used when the founder is still preparing the desired concept, and some startups last a long time in this phase and can still grow.
This funding takes a long time to collect. This funding is ideal, but there are drawbacks that can occur. For example, your savings may be limited.
At this stage, startup companies come from available resources. Investments are usually obtained from the founders of the company themselves, family, and friends. The required funds are estimated to be between 150 million to 1.5 billion rupiah. While looking for funding sources, company founders need to do more research related to ideas, products, market testing, and develop product launch plans.
This funding round can come from personal pockets or from incubation program organizers. At this stage, the product to be developed is still at the minimum viable product stage. This startup funding stage can also be used by startups to finalize their ideas and products before pitching.
Seed Funding or Seed Capital
This startup funding stage is the first external funding stage. During the seed funding stage, startup companies receive assistance in determining the final product and marketing targets.
Company founders no longer have to fund their own startups, because several investors have emerged, such as friends, family, angel investors, micro venture capital, and crowdfunding. In addition, startup founders can find and pitch investors by sharing equity.
In Indonesia, the amount of funds at this stage is predicted to be between 500 million and 2.5 billion rupiah. The funds are used for the process of adding human resources, market development, product launches, and building consumer awareness. It depends on the total amount of funds needed.
At this stage, startups usually already have a more mature vision and solution, and still need to understand how big the potential of the product or service is to be able to reach the target market. Most startups use their funds to recruit a small number of employees. The goal is to assist in completing the first steps, such as product maturation, promotion or branding, or paying employee salaries.
Growth Stage Startup Funding
Startup companies that already have products, have manpower, and have defined the market are ready to move on to the next stage. The funding sources for startup companies at the growth stage consist of the following stages:
Series A. Round
This series A funding begins when the startup business already has a fixed and mature product, consumers, and a decent income. At this stage of startup funding, startup founders need to build the right business model and expand their product range to other areas. In addition, while waiting for new users, startups can provide the characteristics of their products or services.
On average, the funds range from 10 billion to 33 billion rupiah and are obtained from several investors at once. Funding in the series A round varies from the potential and capabilities of the startup business itself. So, startups at this stage need to innovate to expand products or services in terms of features or services provided to the market.
The funding scheme in this round is led by one main investor and supported by other investors. Getting the main investor is quite crucial because other investors will join when the main one is trusted enough. At this stage of funding, the startup has also begun to understand how to find funds and make connections with investors.
Series B Loans or Bridge Loans
This series B funding is given to start-up businesses that have experienced an increase in market share and scaling, are able to survive among competitors, and have a high-quality team. At this stage, the startup company is 2-4 years old, and already has a regular income.
The amount of funds disbursed at this stage amounted to 22 billion to 80 billion rupiah. Startup companies in Indonesia are still having trouble absorbing this figure, because they are still not generating profits according to investor demand.
At this stage, the startup company already has a profitable user base that is needed to maximize market expansion, business model and wider user base. In addition, the startup company uses funding to aggressively dominate a niche market.
Series C Round
At this stage, the startup company is fully mature or mature enough to get series C funding. The business model, number of users, and company are effective and efficient. Startups that are at this stage have a fairly good performance. Funding at this stage is usually for acquisitions or expansion.
Funding figures at this stage are huge, from tens to hundreds of millions of dollars. Investors at this stage consist of advanced venture capitalists, private equity, and hedge funds. Funds obtained from this financing are used to expand products and open branches.
Series D, E, and F. Rounds
This funding stage is an alternative to the IPO. This step was taken because the company needed additional funds because it failed to reach the target they wanted in the previous round of the series. This is commonly known as a down round, and startups usually raise less funds than in the previous series.
Initial Public Offering (IPO)
An IPO is the stage when a company offers its shares to the public for the first time or goes public. It could be that the main investors in this startup funding stage are people who are interested in buying shares of the company on the stock exchange.
At this stage, the funding the company receives will depend on its performance and reputation in the open market. You can already imagine how your startup will run in the future.
Companies that are at this stage have stable financial conditions and good corporate governance. Thus, the company is able to grow bigger by following the market. Usually, it takes 5-10 years for a company to venture out for an IPO.
Of course, it took a long time for the company to get to that point. Even so, it is, of course, possible if all employees of the company focus on growing together.
Those are the stages of startup funding that you need to know! Are you ready to start your own startup?
After reading this article, you can also read more about the types of financial technology which are also alternative funding!