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Different Types of Funding Rounds in Startups

Updated: Dec 8, 2023

Startup funding is a crucial aspect of a company's growth, providing the financial support needed to develop products, expand operations, and reach new markets. Startups typically raise funding through a series of rounds, starting with angel and seed funding, and then moving on to Series A, B, and C funding. Each round represents a different stage of the company's growth and development and requires different types of investors.

Angel Round

Angel investors are individuals who invest their own money in early-stage startups. They are often successful entrepreneurs or investors who are looking to help new businesses get off the ground.

Angel investors in India invest between Rs 5 lakh to Rs 2 crore. However, in 2021, the average ticket size of angel investments fell from Rs 10-15 lakh to Rs 3-5 lakh. The average angel investor deal size in India was just under Rs 3 crore (approximately US$400,000) in 2019.

Angel investors are individuals who invest in entrepreneurial ventures like startups using their capital in exchange for equity. They often provide startup founders with capital for their businesses. Angel investors don't usually acquire more than a 25% stake in a company. They can expect a reasonable rate of return of around 20 to 30 % per annum.


Seed Round

Seed funding is the next stage of funding for startups. Seed rounds are typically larger than angel rounds, Seed money generally comes from family and friends, as well as from angel investors and venture capitalists. The amount of money required can vary greatly but is typically in the range of ₹20,00,000 to ₹50,00,000.

Let's take an example where a firm with a $5 million pre-money valuation is attempting to raise $1 million in a seed round. As a result, the business would have a $6 million post-money valuation.


Naturally, there are differences in pricing between seed rounds. The company's stage of growth, the perceived risk of the investment, and the level of market demand for the

company's shares are some of the variables that might affect the price per share.


Example - AuditCue, an audit and risk SaaS startup, raised $1.5 million in a seed funding round on October 10, 20231. The round was led by Kalaari Capital. Other investors who participated include Java Capital and angel investors from San Francisco. The funds raised will be used for building the product and expanding the GTM & engineering teams. AuditCue is transforming the risk & audit experience for auditors & auditees. With this funding round, they aim to expand further into their primary geographic markets of North America, India & EU.

Some other examples

  1. Bolt.Earth

  2. Dressfolk

  3. Bizongo

  4. QPay

  5. The Cube Club


Series Round (A/B/C)


Series A, B, and C funding rounds are typically larger and more complex than angel and seed rounds. Series A rounds are typically used to scale the company's product or service and expand its customer base. Series B rounds are typically used to further expand the company's reach and market share. Series C rounds are typically used to prepare the company for an IPO or acquisition.

Some of the examples include:

Series A:

● SatSure

● INC5

● Blubirch

Series B:

● Freyr Energy

● InsuranceDekho

● Agnikul

Series C:

● Captain fresh

● Insta base

● Mojo vision

● Zylo and so on


Importance of Funding Rounds

Funding rounds are important for startups because they provide the capital they need to grow and develop their businesses. Without funding, startups would not be able to afford to hire new employees, develop new products or services, or market their businesses to potential customers.


How to Get Funded

If you are a startup founder and you are looking to raise funding, there are a few things you need to do:


Develop a strong business plan: Your business plan should clearly articulate your company's mission, vision, products or services, target market, and financial projections.

Build a strong team: Investors want to see that you have a team of experienced and qualified professionals who can execute on your business plan.

Network with investors: Attend industry events and meetups, and reach out to investors directly.

Pitch your business: Once you have found potential investors, you need to be able to pitch your business to them in a clear and concise way.


Challenges and Opportunities:

● Startups often face intense competition in securing funding, so standing out is vital.

● Building investor relationships can lead to additional support in subsequent rounds.


Conclusion:

Funding rounds are an essential part of the startup lifecycle. By understanding the differences and knowing when to seek funding, entrepreneurs can navigate the funding landscape effectively. Examples of successful startups in Angel, Seed, and Series Rounds demonstrate the diverse range of opportunities available for businesses seeking capital to grow.


Remember that while securing funding is essential, it's equally important to have a solid business plan, a talented team, and a clear strategy for growth. Stay focused on your vision and keep working towards your goals. Success may just be a funding round away.


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