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The business plan is in place. There is a product or service, and it’s time to achieve your business dream. Now it is time to consider the startup funding stages to ensure you are profitable and successful and start building from the ground up.
There are stages of this process that help scale the business once the business picks up steam.
This is the beginning of the funding for your startup – the initial investments. These may come from savings, family or friends, crowdsourcing, and the use of credit cards.
During this early stage of the business, having goals in place can help you measure the rate in which the business is growing. Since it is the beginning of the business, most times, the seed capital covers initial expenses such as rent and equipment, during the development and research phase.
This stage can also include angel investors in two forms: through a loan or involvement with the company with a high level of ownership.
Angel Investor Funding
An angel investor is an individual who can supply entrepreneurs or startups with funds to move the business forward in the scaling phase. These individuals seek out companies in which their main goal is to invest for a high return on investment.
An agreement may be made for partial ownership of the company. Knowing that startups can be a high risk, usually it is not more than 10% of their portfolio. They also enjoy helping businesses in the beginning of the process of a startup.
Angel investors are also knowledgeable in startups and can help with questions or concerns moving forward. If a company goes under, the angel investor also loses their investment.
Venture Capital Financing
An investment at this stage could benefit cash flow. The investors group will begin to ask questions about the business, the profits, the successes and the failures of the company so far. Investors may ask too if they can join in on the business to help and offer their professional expertise. Finally, the goal for the investors is to obtain a large ROI.
The difference between an angel investor and venture capital financing is that the last one helps fund companies that show a potential for large growth in exchange for a stake in the company’s equity. They may fund startups, but what they are looking for are companies with well-developed ideas that are unique in terms of product or service. A stake in the company can help steer it in the direction of high return.
Bridge Loans and Mezzanine Financing
Congratulations, at this stage of funding your business, you are ready to grow exponentially. The funds will go towards expanding the business into new markets and growing with new acquisitions. There is a sound business plan that is now heading towards a large profit.
Bridge loans are short-term loans a business can obtain quickly for real estate or even something that can return a quick profit. Short-term loans are a good option until a long-term one can be obtained. If you’re interested in going to IPO (initial public offering), this can be used to cover the costs and then be paid off when the business goes public. Bridge loans can have high interest rates because of their short-term nature.
A common type of business loan, mezzanine financing is a blending of both debt and equity. It can be a safe option for the lender because if there is a default in the loan, it can be converted to equity interest. This is used for specific projects and used later on in the business’ lifespan.
Initial Public Offering
IPOs provide the public the option to own a piece of your company along with the private investors. This allows the business to continue to expand not only the business but its services and products.
The initial public offering is a process in itself. Companies must meet requirements and then the price is set by investment banks. Investors that have stayed with the company this far will be greatly rewarded. They may leave their stakes behind with their investment fully returned plus more!
These are the common startup funding stages for a business. Take a close look at the business plan and how it is planned for growth and scaling. Remember that all of these options are not required to be a top company, and it will take time to grow.
Do not get discouraged because along the way there are plenty of options for help! By reviewing each of the stages, you can find what is best for the company as you grow.