There is no gainsaying that modern age startups are making efforts towards changing the whole dynamics of the globe. Tech products have always been aimed at making our lives convenient, and since the start of the 21st century, we are witnessing the disruption of conventional industries.
But, we often wonder how some of them have been undergoing exponential growth or getting the resources to develop their product and scale their business. The certain answer is Angel Funding.
The early years of a startup usually don’t yield profits but they run on the startup capital invested by the VCs and angel funds. Funding acts as a foundational step for startups to create a sustainable product and then scale it.
Today, founders pitch their futuristic ideas to hundreds of investors and get millions of dollars in funding. Also, some giant companies who were also startups back in the early days have taken a significant step by setting up their VC fund to back these startups.
Significance of Angel Funding
- Startups usually start with an idea. But to materialize that idea into a solid and sustainable product, startup capital is highly imperative.
- The concoction of a product and its marketing is paramount. Startups use angel funding to spend on their marketing budgets and other promotional tools.
- The funding gets the company to front-seat as it makes them grab the attention of other venture capitalists to secure future funding from them.
- Selecting talented engineers, marketers etc., pay rich dividends to a startup. So, the funding facilitates them with resources to recruit highly skilled employees.
- A market-fit product needs constant marginal innovations. Funding makes room for companies to constantly invest in R&D and innovate, adapting to the market conditions.
Stages of Venture Funding
- Seed Funding: After the founders pitch their ideas to investors, the first stage of funding, called pre-seed funding, happens where it contributes to the company’s initial growth.
The angel funding in the pre-seed round helps the company to finance market research and product development. Also, a capable team is employed with funding. Usually, startups get $10000 to $2 million in the seed round.
- Series A: Scaling the product is as crucial as developing it. Investors participating in Series A round seek a sustainable profit-driven business model which can give them fat returns in the future.
Series A angel funding is utilized towards making desirable improvements in the product and its marketing across channels.
Nowadays, the average investment in series A has exponentially surged as investors bet on an optimistic future, usually amounting to $15 million- $20 million.
- Series B: Now the startup has launched the product, so it needs to grow the different domains of business. That’s where Series B comes into the picture. Taking the startup to the next level, good human power is required.
The startup capital in this round aims to recruit highly expert employees for finance, tech, marketing, operations etc.
The average capital a company raises in Series B is pegged at $33 million.
- Series C: Companies making to the Series C round already show signs of prominence to the investors. It assures that startup is taking giant strides on the path of a sustainable profit-making business.
Startup capital gotten in the fourth round is deployed into expanding the business by entering new markets or acquiring other startups in the form of mergers or synergies to hold the grip of the market. Usually, firms participating in Series C have already achieved a valuation of $100 million.
Factors attracting the Angel Investors
- Leadership: If you are the CEO of your startup then you surely have to demonstrate some core leadership skills. It includes the know-how of the industry your startup is working to disrupt.
Strong Leadership also demands working on a detailed business plan to make the investor understand the prospects of a company and the areas where funding will be utilized.
- A billion-dollar idea: An investor only goes ahead on angel funding when he is ensured to gain a return of at least 8x-10x as startup investment has a low success rate.
The founders must have an idea that can turn the startup into a unicorn future as sometimes startup capital is worth millions of dollars. The more disruptive the idea is, the better amount VCs invest.
- Scalability: Transmuting an idea into a product is easy than scaling the product. Startups must have a sustainable business model for the next 20 to 30 years to make it big.
Only those startups who have a scalable business model and a long term profit-making product get massive funding. If the business has a long term execution and profitable model, it can only give fortified returns on investment.
- Technology: To become a billion-dollar startup, it needs the top-notch role of technology. Technology enables a startup to find the void in the market and then disrupt the market by solving the problem.
Investors are immensely impressed when a company has a strong technical team zeroing in on a product. Only technology makes it possible to do continuous innovations. The software can provide solutions on a massive scale.
- Strong Team: One instrumental thing which differentiates a successful startup from an unsuccessful one is execution. Executing an idea into a successful billion-dollar company involves a core team of engineers, developers, marketers, analysts etc.
It is usually witnessed that startups investing angel funding into creating a powerful human resource raise healthy angel funding.
All in All, We have discussed the whole financing process of a startup, including factors, stages and importance of funding. The entire process can be a blueprint for anyone having a startup idea.
Apart from this, funding is of paramount importance, so every step, including creating a market fit product, having the know-how of industry etc., must be taken into consideration by the founder.
The startup capital becomes a hard task for founders these days. Still, if they take the utmost necessary steps, then that investment can realize the vision into reality and help create a better future for the company.