Starting a business often requires a solid financial foundation. Whether you’re launching a tech startup, a small business, or an innovative new product, securing the right funding is a crucial step. Funding, whether from venture capitalists, angel investors, or any other sources, provides startups with the capital they need to grow, innovate, and scale their business. Learn more about sources to get funding for startups and how to secure them successfully.

How Does A Startup Get Funding?

Funding for a startup can be obtained through various methods and models, each with advantages and challenges. Some of the common sources of startup funds are:

Bootstrapping

This funding source, also known as bootstrapping, uses entrepreneurs’ personal savings to start their businesses. Bootstrapping is often the easiest way to secure initial capital for a startup at the early stage. This means entrepreneurs have to launch minimum viable products to get feedback and traction from customers. Personal savings help manage the business more efficiently to achieve profitability.

Family and Friends

Another funding source comes from personal networks such as friends and family. This method can be less formal and may involve lower return expectations than professional investors. Despite personal relationships, entrepreneurs should treat them as professional business associates. Explaining the type of business being carried out as transparency to potential investors is important. 

Angel Investor

Angel investors offer startup capital in exchange for convertible debt or ownership equity. Most of them are individuals who invest personal funds. This means they might ask to be involved in business, especially involved in scaling for expansion, financial management, and as strategic mentors. This phase was good for the startup in its early stage with high growth potential.

Venture Capital (VC)

Venture capital generally comes from investors, investment banks, or financial institutions. It becomes the best funding source for high-growth sectors such as biotechnology or technology. In the process, investors provide capital in exchange for equity stakes in early-stage companies. The venture capital model not only provides financial support but also strategic guidance, mentorship, and access to extensive networks.

Crowdfunding

This model usually raises small amounts of money from a large number of people via platforms like Kickstarter, Indiegogo, or GoFundMe. It works on consumer-focused products with broad appeal. This means, in this model, at least we already have a fit product ready to launch and also already get a purchase order or agreement. 

Grant and Competitions

This fund is easy to get if you have the original idea and directly have an impact (similar to the CSR program), especially in solving environmental issues to create a circular economy. The startup must create a storyline about the business and also impact analysis. This fund model is non-dilutive funding provided by governments, foundations, or corporate programs.

Bank Loans and Credit

Traditional banks usually offer business loans to cover startup businesses' initial expenses and operational costs. These loans can help entrepreneurs who may need more personal savings or other financial resources to start their businesses. However, this funding source might be challenging for some startups due to stringent requirements like business history and collateral.

Accelerators and Incubators

Attending program accelerators and incubators to get Programs offering funding, mentorship, and resources in exchange for equity. This model is like a community forum that the startups can attend and also directly pitch in front of many investors (VC, PE, Angel Investor, etc). The benefits are networking, exposure, and funding.

What Are The Stages in Startup Funding?

The funding process for startup businesses typically progresses through several stages. Each stage serves a unique purpose and attracts different types of investors. All levels of startup funding are crucial to building and scaling the business effectively.

Pre-Seed Funding

Pre-seed funding is the early stage of startup funding, where entrepreneurs use personal savings or funds from friends or family to start developing their businesses. In this stage, business research and development are still in progress or even have a working prototype. The target is to create a minimum viable product and validate the business concept. 

Seed Funding

In the seed funding stage, entrepreneurs seek external help to further develop their product, such as angel investors, venture capitalists, or crowdfunding. This funding helps in conducting market research and launching the product. The entrepreneurs try to build traction to get a relentless flow of revenue. Otherwise, the startup may fail to develop more.

Series A Funding

The Series A funding stage is important for startup businesses with a solid business model and looking to scale their operations. Companies that entered this stage mostly already have a customer base and some revenue. The funding in this stage comes from angel investors, capital firms, or through equity crowdfunding.

Series B Funding

The series B funding is targeted to expand the startup’s market reach and scale its operations further. Startup businesses in this stage are expected to have a steady stream of revenues and are looking to grow their customer base significantly. The funding source comes from venture capitalists and late-stage investors.

Series C Funding and Beyond

This funding stage can also be used for acquisitions of other companies to scale rapidly. Parties such as investment banks, hedge funds, private equity firms, and venture capitalists will be involved in the series C funding stage. After this funding stage, it can be continued to series D, E, and beyond, depending on the company’s performance, profitability, and the market.

Exit Stage

Exit funding stage, also known as Initial Public Offering (IPO), is the stage where the startup offers its shares to the public for the first time. This process transforms a privately held company into a publicly traded business entity, allowing it to raise significant capital for further growth. 

How To Secure Funding For Startup Businesses?

Securing funding can be a challenging yet crucial process for startup businesses. Entrepreneurs must deploy several strategies to attract investors and raise capital to finance their business operations. Some of the strategies are:

Have a Clear Business Plan

A clear business plan is necessary to prove that the business has growth potential and will be profitable. This plan outlines the company’s vision, objectives, market analysis, and startup financial plan projections. It is also important to clearly articulate the company’s unique value proposition that differentiates the startup from its competitors. This will enhance its appeal to funding sources.

Build A Strong Team

A strong team is the backbone of every early startup business. It is important to get a team with excellent talent and experience and boost their performance when working for the business. This involves delegating work effectively, including team members in decision-making, avoiding micromanaging, and communicating effectively.

Network Effectively

Building relationships through networking with the right people will make securing funding for your business easier. Business networking can also lead to valuable introductions to potential business partners and other business opportunities. Entrepreneurs can try attending industry events, joining startup incubators, and connecting with potential investors through platforms like LinkedIn. 

Pitch To Potential Investors

Pitching to potential investors involves compellingly presenting the startup’s business plan to attract funding. It includes creating a well-structured pitch deck that highlights the problem the business will solve, the unique solution, the target market, financial projections, and the team’s expertise. The goal is to convince investors of the startup’s potential for growth and profitability.

Need Capital to Fuel Your Growth? Phintraco Natha Kapital Got You Covered!

Finding the right funding partner is crucial to ensuring the startup’s long-term success. Phintraco Natha Kapital serves as a strategic partner to support businesses’ funding and growth. We provide essential capital and advisory services to empower businesses in their growth journeys. We invest in businesses and the people behind them. Whether you are an established business seeking leverage or a promising startup, we are committed to offering tailored solutions to help you achieve your goals. Our investment portfolio includes various companies, from IT infrastructure, education, property, and manufacturing.With Phintraco Natha Kapital, you will have a partner who understands your business and is dedicated to your success.

Editor: Irnadia Fardila