Funding is the soul of any business, as it is the main factor on which any startup is based to continue its activities.
And 94% of new companies fail within the first year of their launch due to financing problems.
Financing is not just obtaining the necessary funds to start a business, but rather the financing process includes managing and following up funds and drawing up the necessary plans in order to achieve the goals set for the company, and financing is also concerned with the risks that pose a threat to investment activities.
In a report written by Cyril Diamandi and published by the American Mintymint website, financing rounds are necessary to promote the expansion of emerging companies.
especially as they come after the first stage of financing that guarantees seed capital, and the funds collected from the financing round are used to develop leadership skills or The acquisition of modern technological programs or equipment that require the development of labor productivity.
Types of financing rounds
Startups aim to enhance their liquidity through funding rounds, and they must go through the evaluation process by investors before starting any funding round.
The site identifies the most prominent types of funding rounds as follows:
At this stage, the start-up is characterized by the fact that it is still in the stage of generating ideas, feasibility studies, and developing business plans, and often the founders themselves, or business incubators.
It is not necessary at that stage for the company to have a product, and the most important thing is for the company to have a future vision of the market and expected profits.
Seed funding round
Many financing experts consider the primary financing round to be the first official financing round to start work on the project with the aim of reaching the stage of stability of the company in work and starting to achieve sales and reap profits.
Angel investors are the largest investors in that stage, so some call it the angel investor stage by obtaining an ownership stake in the company in exchange for their investments, especially since they know that most of the companies invested in will not succeed, but they invest in more than one sector and more than one.
A company to reduce risks and achieve profitability from some of the companies that have been invested in.
Funding Rounds For Startups
In another report published by the American “Forbes” website concerned with investment affairs, writer Alejandro Cremades identified 3 major rounds of financing startups.
Series A investment round
At that stage, entrepreneurs are looking for more financing for their startups to promote expansion in local markets, target more customers, and improve and develop the product. On the other hand, investors are looking for companies to reap big profits.
Entrepreneurs at that stage resort to using crowdfunding companies to raise capital as part of the first investment round, along with investment funds and business incubators.
On the other hand, the company must have, at that stage, an elaborate financial plan through which it clarifies to investors the details of their profitability in the long term.
Series B investment round
When startups succeed in the first funding round, they have proven to investors that they are ready to succeed on a larger level.
Entrepreneurs resort at this stage to invest in research, analysis and marketing. Start-up companies often target expansion in opening new markets.
The second investment round looks similar to the first round in terms of operations and main participants, and the difference between them is that the second investment round represents an addition to a new wave of venture capital firms specialized in investing in later stages.
Series C investment round
This is the easiest funding round for startups to attract investors, as the project has already proven to be very successful.
A larger number of investors may participate in this round, such as investment banks and investment funds, which cover hundreds of millions of dollars in financing.
The goal of the entrepreneur in the third investment round is to acquire a larger market share, to acquire a competitor in the market, or to expand the project.