What differentiates a startup that fails from one that succeeds? There can be several things.
The leadership effectiveness, business acumen, and operational efficiency of the person in charge (and the people working with them) play a role. The business model and corporate structuring are certainly factors. The product or service itself – is it good and unique, and does it provide value? – matters and can determine business success outcomes, too.
Why Startups Need to Raise Capital?
When CB Insights analyzed their post-mortem data of startup failures, they found that cash, or the lack thereof, is the top reason startups fail. According to their data, 38% of the failed startups in their study ran out of cash or could not raise new capital.
Think of a startup like a car in an endurance race like Le Mans. To even have a chance at winning, it has to cover as much distance as it can for 24 hours. If it runs out of fuel, it will grind to a halt.
The Funding Rounds
When startups need money, they go through funding rounds. It would help you plan your funding strategy to know what these rounds are, what they are for, and what they entail.
Pre-Seed Funding: Faith in an Idea
Pre-seed funding is the earliest funding round or stage. At this stage, all you probably have is an idea and many plans, like:
A mockup of your minimum viable product
What problem your product solves
Who your market is
The pre-seed round typically enables the following:
Idea validation: Ensuring that the concept addresses a real problem and has a potential market
Prototype development: Creating a basic version of the product to demonstrate its feasibility
Market research: Gathering insights about potential customers, competitors, and the overall market landscape
Additionally, the pre-seed round can become the benchmark for future rounds. What if a startup founder gets pre-seed capital and utilizes it well and cost-effectively to accomplish the purpose of the funding round? That will provide verifiable proof of the startup’s viability and the founder’s abilities, engendering trust that can be valuable in the next funding round.
Series Rounds: To Expand and Scale
Once your business is established – has a robust customer/user base and generates revenue – you can raise capital to scale up operations. To do this, you go into the series funding rounds. These are:
Series A: Capital to maximize growth momentum
Series B: Capital for expansion, say, a private jet charter flight app venturing into operator-to-operator dry leasing to directly offer flights
Series C: Capital for strategic acquisition, research and development, geographical expansion, or initial public offering (IPO) preparation
Some startups have Series D and E rounds, but they’re rare. Series C is typically the last funding round before a startup considers raising capital through an initial public offering (IPO). Business founders may also choose to exit at this stage if another entity acquires their interest in the business.
Source: https://www.insightssuccess.in/
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