App investment: What are the stages and how much do you need to raise?
Start-up funding is no easy feat, and there is no one-size-fits-all approach to it. In most cases, the more capital you manage to raise, the better. However, there are risks in raising too much too early as well. For one thing, you might be at risk of losing control of your start-up if you give too many shares away and regret it later. Moreover, getting a high investment in the beginning of your journey could make it more difficult to secure another investment later on. For instance, a second round of investment could be less than the initial one and negatively affect your valuation. Alternatively, it might be too expensive for investors to even consider.
With all this in mind and no universal solution to offer, let’s take a look at the most common start-up funding stages. In doing so, you can determine what solutions fit your goals and what steps you can take to achieve them.
Start-up funding stages
Overall, there are seven start-up funding stages that are widely recognised. Some experts don’t classify all of them as official stages, others add further ones based on their opinion and expertise. In any case, the stages are there to guide start-up owners and you should avoid feeling constrained by them. Below we’ve outlined the main seven stages and the essential points associated with them.
Pre-Seed
Approximate fundraising: $10,000 – $100,000
Potential investors: Self-funding, Friends and family, pre-seed VCs
Pre-seed, also known as Bootstrapping is an often overlooked stage of the start-up funding process. Be that as it may, all start-ups go through it in one way or another. At this stage start-up, owners begin the process of turning their idea into reality. In order to do that, funding usually comes from either the owners themselves or their friends and family. As well as that, there are pre-seed options for VC (Venture Capital) investment, but they are not common at this stage.
Seed
Approximate fundraising: $2M
Potential investors: Accelerators, Angel investors, micro VCs
One of the most widely known rounds, the Seed round is where a start-up secures investment from multiple sources to build the foundations of its structure. Above all, at this stage of development, start-ups should focus on setting quantifiable milestones and achieving them. In this way owners can prove the concept of their approach as well as test it. More than just funding, the Seed stage can offer the support and advice of investors in setting future goals and defining approaches.
Series A
Approximate fundraising: $2 -$10M
Potential investors: Super Angel investors, VCs, Accelerators
Once a start-up is set up and its concept is proven, it’s ready for investment that will help it grow. Series A comes in at this crucial stage where investors fund a company in return for equity. The essential thing to remember here is that the purpose of this round of investment is to help a start-up scale up. If a company’s main setbacks to growth are financial, then this is the right step forward. However, if the main constraints to scaling up are product and market-related, then it’s worth resolving these issues before moving onto the Series A stage.
Series B
Approximate fundraising: $10 – $30M
Potential investors: Established VCs, Super Angel investors
Similarly to Series A, Series B is a stage, where the goal of raising funds is to grow. In contrast, however, Series B investment is secured by companies that are starting to turn a profit and that have a proven track record of growth and success, such as revenue, assets, market share and others. At this stage start-ups looking for investment are usually aiming to expand to another product-related or geographic market or scale up quickly and efficiently.
Series C
Approximate fundraising: $15M+
Potential investors: Hedge funds, private equity companies, Banks
Once a start-up has proven itself to be successful it can secure funding from multiple sources at the Series C stage. Companies use this stage of funding to expand, acquire smaller start-ups or prepare for a buyout. Whatever the scenario, this is considered the big leagues and it’s difficult to have a set guide for moving forward. Further investment can be secured by Series D, E, or F funding, but this is determined by a company’s goals on a case by case basis.
Initial Public Offering (IPO)
Approximate fundraising: $50M+
Potential investors: General public
This stage is defined by offering the shares of a company to the general public. In some cases this can be used by start-up owners as a way to sell their share, in other ones it can be a way to generate further funding.
Start-up funding in a nutshell
In any case, it is important to remember that these stages are outlined to guide a start-up owner, not to constrain them. Most importantly, start-up owners need to understand what makes their unique company ready for each of these stages. If rushed, this process might result in smaller investments than necessary or pursuing avenues that are not the right fit for your offering.
If you’re at the stage where you’re looking to turn your app idea into reality, the Novaflip team is here to help.
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