Startup rounds: Challenges and Risks
Working closely with startups, our team has developed its own vision of each stage of financing. According to well-known statistics, only 1 in 10 startups become successful. Let’s see why!
So what are investment rounds and what are they?
Investment rounds are stages of raising funds for business development. There are early stages of attracting investments:
- Round A;
All other stages are late:
- Series B Funding – Second round of Venture Capital;
- Series C Funding – Third round of Venture Capital;
- Series D Funding – Special round of funding;
- IPO – Initial Public Offering;
How does each round work?
The first stage is the pre-seedinvestment stage. The task of the pre-seed stage is to test your business idea, choose a vector of activity and turn the idea into a product. When the product is ready, you can go for seed investment, whose task is to find product-market fit. When the product-market fit is found, it is time to attract investments from round A.
Round A comes if the seed round is passed successfully. This is where the task arises to find a quality vendor for application development. The amount attracted at this stage is from 500 thousand dollars.
The amount of funding at this stage is from $ 1 million. At this stage, companies scale up. Among the tasks of this stage, they highlight the growth of profits, the conquest of new markets for products, the expansion of coverage in the occupied niche, as well as the following risks: ineffective teamwork, lack of understanding of how to achieve tasks, incorrect decisions when scaling. dollars.
The challenge for the company and its creators is to achieve self-sufficiency. The startup becomes profitable only at the stage of round C. After this round, the company is able to exist on its own.
The main challenge is to finally turn a bold experiment into a stable and predictable business project. Not all startups reach this stage. Many people do not achieve success due to a lack of knowledge and experience, an inability to think like a businessman, and not just be creative.
This is financing before a sale to a strategic investor or an IPO. Funding from 1 million. The upper limit is conditional, most often it is 50 – 100 million.
The main challenge for companies is to attract a strategic investor, to show customers their value.
IPO is Initial Public Offering. This is a process during which a company offers to buy its shares to an unlimited number of investors, that is, it becomes public. Few companies come to an international IPO.
Compared to the preseeding round, 99.9% of projects are eliminated. But loud exits are known to everyone: Yandex, Mail.Ru, QIWI, HeadHunter. An initial public offering is one way to get out of an investment. In order to ensure the stability of quotations on the exchange, investors are selling their stake gradually over several years. In addition to the IPO, an investor can exit through a sale to a direct investor. Over the past few years, when the stock market is not conducive to an IPO, this is the best option for an exit.
We have described the main funding rounds. Not all startups go through every round. Often the rounds are combined or vice versa, intermediate ones are distinguished. Therefore, it is very important to choose the right vendor for developing a startup application. Contact the Lightpoint Global team for a successful startup and get a free consultation!