How Start Up Funding Works?
Funding is one of the most imperative thing to grow a start up. Because in reality, if you really only on idea, it won’t produce money especially if you are in early stage. These funding come from a lot of source, there are a lot on international and local funding actor such as: Tencent, Mirae, Sovereign Capital, Mandiri Capital, etc. Based on Tirto.id, south east Asia receive 4x bigger funding on 2016 with $274 B compared to 2012 with $73 B. A lot of start up in Indonesia receive these funding and even can grow them into unicorn start up. Here are example of Indonesian’s unicorn which receive funding,
These unicorns receive various kind of funding through out their growth. But what are exactly these funding? Here I’ll give you easy explanation of stages of start up funding.
Seed Capital
Seed capital is funding that usually receive from friend or family. Even it can come from founder’s assets and savings. In some cases a founder may stop working on their previous company and then starting their own company, thus they use their saving as seed capital. Founder may also see bank loan as seed capital. If it comes from friend or family, usually it will be received as loan instead of promising stock.
Early or First Stage
In this stage, the start-up usually already pass the ‘break even’ point and start to scale and prepare their company for growth. Usually, the funding type are angel investors or venture capital. Angel investors is an individual who do an investment on a start up and ready to take the high risk. They will ask stock in exchange of investment. In some cases angel investors may start do investment as seed capital. On the other hand, venture capital is a group of investment to start up that are deemed to have high growth potential. For both angel investors and VC understand that investing start up early stage has a very high risk and stake.
In this stage there are several series of funding, which is series A and series B.
- Series A start up usually already ‘on track’. They have figured out their product, market, distribution, and many more. What they need to do in here is to improve their products, KPIs also win the competition. In this stage they will fight for funding by using potential of their idea and company record. In exchange, investor may receive stock or IT assistance.
- Series B start up are those company which already stable. They already have base user and promising business modal. In here they will think how to scale their company and grow even more. This will be the idea they will bring to investor, how to expand and scale their company even more
Later Stage
In this stage there will be Series C funding in which company already mature. They have expanded user base, a working business model, and may do acquisition at hand. Another funding type is mezzanine financing. Usually company will use this type if they eyeing for IPO. Later on, the result from IPO will be used to pay back mezzanine investor.
IPO
In here, thanks to your company handwork and various findings, finally your company has reach the promised land. You may sell your stock to public in stock exchange. From here onward you may pivot your company or expanding even more.
These are the stages of start up funding. The point of these funding are getting your investor trust while surviving the competition and use the investment money efficiently. At the end, the company will survive and grow bigger than ever.
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Nice sharing Mrs. Maharani, but i have questions, since the start up receives funding in early stage from angel investors, you write that the investors will receive stock a.k.a ownership or IT assistance as an incentive, so what kind of stock they receive? common or preference stock? and in case of unicorn, what if the amount of capital received in early stage of funding is much bigger than seed funding own by the founder, does the founder lose majority control or voting right over his/her business? i mean, the business will listen (obey) more to the angle investor rather then the founder