Startup capital is what every entrepreneur needs to get his startup off the ground because without it, you are not going anywhere and you are not going anywhere fast.
Initiating a startup project is a costly endeavor and while many entrepreneurs will choose to bootstrap their startup in order to save on costs, there will be overheads which need to be maintained, staff which need to be paid and especially with tech startups, technology which needs to be developed.
This is the golden question, when do I need startup capital, as it is of the utmost importance. Any endeavor which you undertake within the startup ecosystem is a risk. It is a risk because ultimately, 95% of startups will fail and usually, there is a cost involved.
However, there are a number of tasks you can complete first to reduce your capital outlay even before you set up shop with the local companies register.
Idea formation and concept design.
So, you have an idea, you have seen a way in which you can improve on a legacy system or you have a eureka moment, nearly fall off you chair and have, what you believe to be, a Eureka moment with an original idea.
So, get your idea down on paper, it does not have to be in depth now, you can create a wireframe outline of the concept, do some initial research on the market and its incumbent participants and define the problem and solution that your startup will address.
So, once you have taken the time to do this and reflected on the idea or concept in greater depth, you will be able to decide after evaluation, if this is really something you want to proceed with.
If it is, then you will have to look at attaining startup capital as this is when you will need your startup capital to assemble a team and progress with proper market research.
There are numerous ways you can raise funds to facilitate the initiation of your startup project. As we are at the very beginning of the journey, the following types of startup capital are available.
· Self-funding – you can use your savings, if you have any, to bring your startup to a level where you believe you will be able to attract funding from a different source.
· Bank loan – Yes, the tried and tested method of going to the local bank and acquiring funding. You most likely will need to place something as security, a house or equity which has value.
· Family and Friends – It is very common for founders to go to family and friends for initial startup capital. They know who they are dealing with and the potential that person has for success.
· Take on a co – founder – Look to bring in a co-founder who also has access to funds.
· Approach an early stage accelerator/ incubator. Most likely they will need an entity in place but some do not.
· Approach a pre-seed stage VC. This is a very limited scope because they are inundated with requests and the equity cost can be huge. Your situation should dictate if you want to follow this path.
· Angel Investor – an external individual investor
· Government Grants – In various sectors of research the government will provide grants to startups to enable the research.
· Crowdfunding – a great resource which is used to fund startup[s at the initial stage.
As stated above, in some cases you may need to have an initial corporate structure in place to attain startup capital at this stage of your entrepreneurial journey but with some, such as family and friends it will not be necessary.
Some people think that is it, that is all the startup capital they will needs and this is usually out of a lack of experience but it is not.
Startup capital comes in stages and these stages are defined by numerous variables such as traction, revenue among others. So let’s take a look at the stages of funding in which you will need startup capital.
1. Bootstrapping/ Self-funded / Angel
2. Pre- seed
4. Late Seed
5. Series A
6. Series B
7. Series C
8. Series D
Please note the series rounds can go further in the growth stages before going public via an IPO (Initial Public Offering)
There are very specific reason why the fund raising cycle is broken down into stages. One they provide insight to a VC or Venture Capitalist as to where you are in the life cycle of a startup.
This usually encompasses limits to how much you can raise at each different stage, however, this is not a steadfast rule and super startups with famous founders or founders with strong track records of multiple exits will garner more attention and a higher investment level. Let us take a look at the stages of startup capital from a different perspective, the development or growth stages.
· Idea, concept
From this perspective, you can see what a venture capitalist or investors will look at. Through these stages the funds will be required to get you to the next stage. As such the investor at a very early stage will not expect you to be turning profits if you are developing the product or concept, however, they will be looking at the time it is taking you to do so.
We will of course go into each and every aspect of the stages of startup capital and what you need to approach and apply to each type of investor, so stay tuned and if you have not registered for a profile, please do and join our startup ecosystem.