You certainly often hear about startup companies. If you are familiar with Tokopedia, Ruangguru, Cermati, Traveloka, dadupoker or Go-Jek, they are some example of successful startup companies in Indonesia. Following the success of those startups in Indonesia, many people now want to set up their own startups and pour their business ideas.
However, having desire and ideas alone are not enough. One important element to starting a startup is funding. There are several stages in startup funding. A big investor might be able to fund all stages, but sometimes an investor only funds certain stages and the startup company must find other investors to continue with the funding.
Most common types of startup funding
- Pre-Seed Funding
Pre-seed funding is the initial stage for startups in order to raise funds. At this stage, the startup company introduces their business model and its potentials. The investors involved in this stage can be family or relatives, angels, and accelerators. Usually, at this pre-seed stage, a startup will receive a small investment that is useful to start a business process.
- Seed Funding
Still classified as the initial stage in funding. At this stage the capital from investors is usually intended to help startups to move from the product development process.
The funding in this stage will generally help in recruiting competent staff and renting or setting up offices. It is also time to pay attention to the early results and identify whether the products has addressed the right market. For investors, it is time to pay attention to whether the startup has been run according to the target and expectation. Investors at this stage usually come from angels, venture capitalists, and accelerators.
- Series A
This is the stage where startups already have several flagship products with many customers. However, startups still need to continue with innovation to expand their business. The key to funding at this stage is finding the right venture capitalists and also looking for suitable partners.
- Series B
At this stage, startups usually have been 2-4 years old, which is marked by having a regular customer base that generates profits. The purpose of funding at this stage is to maximize market and business expansion.
- Series C
At this stage, funding is used to make a massive expansion of products, as well as the market, namely by opening branches, both nationally and internationally. Investors who provide funding at this stage are usually banks, private equity entities, capitalists’ ventures, as well as hedge funds.
- Initial Public Offering (IPO)
The IPO is the final stage in startup funding. At this stage, startup shares are sold openly on the stock exchange. Normally, a startup needs a minimum of 5-10 years to reach IPO stage.