Greetings for the day!!!
Many people asked, Few experts posted and still most of the startup enthusiast are confused. let me give a try. Read this If you want to know - How Funding works?
I have been working for many Startups since long. One of the greatest challenge is funding. Let’s make it simple and will try to understand actually - How it works?
Assume you have started a business and now looking for funding.
First understand - Investment pattern has some rounds like seed, A, B, C - please understand purpose of each round. (*** Note - These explanation of rounds is just to understand the purpose. There are no standard definitions for this.)
Seed - (Sources - Angel Investor, Family, Friends) - For making things happen / reality and getting first few buyers.
Series A - (Sources - Angel Investor, Group of Angels, VC’s, HNI’s, Companies) - Scale up to particular level.
Series B - (Sources - Group of Angels, VC’s, HNI’s, Companies) - Expansion and capturing more market
Series C - (Sources - VC’s, Companies) - Making it more profitable, sustainable or reaching new heights.
Before going ahead, you need to make some plans and reports - Pitch Deck + Business Valuation
Consider your Startup valuation is 8 INR.
1- Seed Stage - (Generally at 10-25%)
Pre valuation - 8 (You own 100% - 8 INR)
Seed Investment - 2 INR
Post valuation - 10 INR (You - 80% - 8 INR, Investor 1 - 20% - 2 INR)
Consider your Startup valuation is 40 INR
2- Series A -
Pre valuation - 40 INR (You - 80% - 32 INR Investor 1 - 20% - 8 INR)
Series A Investment - 20 INR
Post valuation - 60 INR (You - 53% - 32 Investor 1 - 13.66% - 8 INR, Investor 2 - 33.33% - 20 INR)
Consider your Startup valuation is 100 INR
2- Series B -
Pre valuation - 100 INR (You - 53% - 53 INR Investor 1 - 13.66% - 13.66 INR, Investor 2 - 33.33% - 33.33 INR)
Series B Investment - 40 INR
Post valuation - 140 INR (You - 38% - 53 INR Investor 1 - 10% - 13.66 INR, Investor 2 - 24% - 33.33 INR, Investor 3 -28.50% - 40 INR)
Likewise you can calculate.
P.S - This is just information to understand how the funding works. Please consult your mentor, advisory or investor before implementing anything.
Startup Mentor and Consultant