FINANCIAL

The Funding Primer: How A Start-Up Moves From Incubation To IPO

By Ashna Ambre
Mint, New Delhi.

MUMBAI

Incubation happens out of hatcheries and unicorns are found in cities as well. For those involved in the business of raising capital, both are terms attached to different funding stages in the life-cycle of a start-up.

Incubation/bootstrapping ($40,000-$100,000)
The first stage of a start-up when the idea of the business is still developing. The founders of the start-up may put up money, usually pooled together from relatives and friends, or they are helped by so-called incubators that specialise in helping start-ups.

Angel/seed funding ($250,000-$1 million)
This round of money usually comes from those referred to as angels, who could be wealthy individuals, professional investors with expertise in funding, advising and helping early stage start-ups, or organised networks of professional investors. The funds are used by the start-up to begin operations, launch its product or service, hire a small team of 4-5 people and rent out a small office.

Series A ($2-7 million)
By this stage, several customers have already used the start-up’s product or service. Now, the start-up needs more cash to increase its customer base, improve its technology and hire more people. Typically, venture capital firms lead the Series A rounds of funding.

Series B ($7-15 million)
In this phase, the start-up looks to accelerate its expansion, set up new offices, increase its team strength and hire more accomplished and experienced professionals. Consumer Internet start-ups usually use the new funds to market aggressively while enterprise-focused start-ups build large sales teams to increase their customer base. By this time, it’s not unusual for a start-up to see a churn in its senior management team as new people may be needed to achieve and handle the growth in sales that investors expect.

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