• 4- Raising Capital

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    As a startup grows, its need for financing will also increase. While many entrepreneurs will be able to rely on their own savings, and funding from family and friends, to finance the initial stages of their startup, most will not have sufficient levels of cash to establish a company and overcome the considerable financial challenges that come with it. It is therefore critical that as a founder you possess the knowledge and self-awareness to understand your current growth stage and trajectory, financing needs, and how fundraising will affect your operations and future growth. This section provides an overview of the characteristics of startups at various stages, and the funding required to maintain your targeted growth.

    Your startup will go through various stages in its business cycle, from the birth of your idea to a trajectory of continuous innovation or decline. While stages are similar for most startups, they also depend to a great extent on a country or region’s ecosystem, and the various challenges and opportunities it provides. As shown in the figure below, startups will generally go through the following stages in their journey10 and in each stage they will require different types/amounts of funding.

    1. Conception (Idea)

    At this stage, you will have developed an idea based on an opportunity in the market, and will begin to refine it. Such an idea should be formed based on prior experience and an understanding of the gaps in the market. At its infancy, your idea is most likely very raw and untested, and at this stage your understanding of the eventual product and business is very basic. You should not seek funding from investors at this stage. Rather, you can, and in some cases should, seek incubation and/or support from dedicated incubators and accelerators.

    2. Seed

    At this stage you will have launched your business. Your product may still be a prototype or require further refinement, and your sales will most likely be inconsistent, bringing minimal revenues. You should begin to identify your product or service’s fit in the market, and have the potential to pivot. At the seed stage you should still be bootstrapped and taking advantage of all the opportunities offered by incubators and accelerators. However, you may be able to obtain funding based on the promise of your idea and potential—although this will usually be from family and friends, and accelerators and incubators, as opposed to support from more seasoned angel and institutional investors.

    3. Early Growth

    At this stage, your product or service will have achieved market fit, meaning that there is a need for your product/service in the market and you will have started selling your product or service to customers. However, as a startup you will still be struggling to gain a proper foothold and establish yourself. While you will be generating revenues, you will be struggling to generate profits.

    As shown in the figure on next page, the emphasis will gradually shift from you as an entrepreneur and the founding team to the startup as the execution team and the company’s set of structures, controls, and operating procedures, however basic they may be. Your company will have generated enough data and know-how on the market, and will have developed enough of a skill-set (especially when it comes to tech-oriented startups) to be able to undertake a final pivot if required.

    While startups at the early growth stage should still be bootstrapping, many will have obtained some type of external funding, even if at low levels. Consequently, they will have an idea of their valuation and have begun serious research on suitable potential investors. Nevertheless, businesses at this stage will generally be struggling with cash flow and will begin contemplating seeking additional funding to manage diminishing reserves of cash.


    At this stage you should have a fully developed product or service and be generating large revenues, with a wide customer base, and a growing presence in the market.

    You should be focusing on growing your team and evolving your organizational structure, and the controls that come along with it. Proper governance in terms of rules and standard procedures that guide your business operations will become more and more important—it ensures the efficient growth of your startup into an established company.

    Your rapid growth will, however, mean that you will be struggling to maintain adequate cash flow, and will need to turn to other sources of external funding, including banks and investors. Depending on your growth, you can also be contemplating a Series A funding round, the first round of venture capital funding for a startup (and later potentially B, C, and D rounds) following seed or angel financing, that will enable you to expand your reach and markets. You and your investors should be anticipating exponential returns on investments.

    The figure below shows the funding needs of a startup according to their growth stage. The ranges below are not absolute, and can change from time to time, according to region, and depend on specific funders and startups.

    Criteria Conception Seed Early Growth Growth Publicly Traded Company
    Types of Funds • Personal Savings
    • Grants
    • Equity Financing
    • Personal Savings
    • Grants
    • Equity Financing
    • Debt (Soft Loans)
    • Equity Financing
    • Mezzanine
    • Equity Financing
    • Mezzanine
    • Debt
    • Equity Financing
    • Debt
    Typical Funding Range Often below $150k Between $10k–$2M Between $1M–$30M $10M+ $50M+
    Source of Fund • Savings
    • 3Fs
    • Incubators and Accelerators
    • Angel Investors and Micro VCs
    • Crowdfunding Platforms
    • Non-Profit Foundations
    • Saving
    • 3Fs
    • Accelerators
    • Angel Investors
    • Early Stage VCs
    • Development Funds
    • Angel Investors
    • VCs
    • Banks
    • Late Stage VCs
    • Private Equity Firms
    • Banks
    • Stock Market (IPO)
    • Banks
    Focus of Funding • Developing Prototype Products
    • Hiring Critical Team Members
    • Funding Product Development
    • Marketing
    • Growing Customer Base
    • Recruiting Sales, Marketing and Customer Support
    • Expanding into Different Market Segments
    • Hiring Expensive Senior People
    • Experimenting with Different Revenue Streams
    • Acquisition
    • Expanding into Mew Markets or New Industries

    Funding Evaluation Tool

    The following tool provides you with guidance on the stage your startup is at and what funding sources to approach and when. It is important to note that every entrepreneur and startup is different, and that the criteria shown below are not absolute.

    Stage Evaluation Tool

    Criteria Conception/Idea Seed Early Growth Growth Publicly Traded Company
    Revenue $0 Inconsistent Significant revenues, but still struggling to generate profits Significant revenues, but still struggling to generate profits Exponential Revenues
    Product Idea only MVP
    Still pivoting
    Product market fit achieved
    Last chance to pivot
    Fully developed product
    Company systems are in place
    Diversified Products
    Established Policies, Procedures, and HR Systems
    Co-Founding Team 1 to 4 full/part-time 2 to 4 (full-time)
    Executive Team Founders Founders + (1-5 employees) Founders + (5 to 20+ employees)
    Growth Idea validation Customer validation
    Beginning growth
    Accelerating growth Exponential Growth
    Board of Directors None Cofounders, Investors Founders, industry experts, Investors

    Funding Sources Evaluation Tool