A Guide To Funding
Which ambitious startup can survive without funding? The market is competitive and the struggle to survive is real yet surprisingly, technical knowledge on the metrics of funding is almost absent in today’s entrepreneurial communities. In this article we’ll introduce you to the basics of funding, the types, stages, structure and the requirements based on the 1000+ applications that we see of startups who want to be part of the T-Hub community.
Depending on a company’s progress and financial stability, there are several rounds of funding available:
The first monetary investment in a business idea is called a seed investment. In most cases, the amount is raised from personal finances, friends and family
The second round of funding is primarily targeted at ‘Angel’investors high networth individuals who invest in potentially high growth startups at very early stages.
3. Bridge Funding
Investment raised before Series A funding and post Angel investments are clubbed under bridge funding. The people from the Seed and Angel investment rounds are likely investors at this stage, and fund the startup up to INR 5 million to 7 million.
4.Series A Funding
Upon achieving a stable product with regular customer growth, the Series A funding round is initiated. Investors include accelerators, angel investors, seed funds and earlystage venture capitalists are the ideal participants and the amount raised ranges from INR 5 million to 15 million for midrange potential startup in the Indian ecosystem.
5.Series B Funding
Once the product has established itself and carved out a consistent user base with strong growth figures, Series B funding is initiated. Individual angels, seed funds and venture capitalists participate in Series B funding.
6.Series C Funding
Upon finding a suitable business model that has a clear growth path for a 3-5 year period, along with consistent growth in the customer base, Series C funding is initiated.
It is not just the knowledge of the funding, but also there should be sound knowledge of those essential metrics required for investors to evaluate the progress and health of a startup. An investor is not merely looking for an idea they wish to invest in a business. The core team aggregated by the founders also plays a vital role in an investor’s
CAC =(Total Marketing Cost / Total Customers Acquired)
As a B2C startup, advertising is essential to persuade customers. These costs will matter when the startup is trying to scale up or even stay afloat after a given time.
These factors generally help the investor understand and analyze the lifetime value of the business and the scale it can grow. The last metric deals with the cash flow and its efficient usage. Familiar cash flow metrics include payback period, breakeven point, net present value(NPV), return on investment (ROI), internal rate of return(IRR), and cumulative average growth rate (CAGR).
Gross margins measure the operating profitability.
The gross margin of the industry will be helpful in determining the startups place in this competitive world. The gross margin determines the effectiveness of the management sales, and customer teams.
Activation rate is a number which determines the number of people interacting with a service or product
Activation rate is a number which determines the number of people interacting with a service or product.
Activation can be defined in several different ways depending on your business. It measures quantities like the number of clicks, time on the website, pages viewed, downloads, email/blog subscription, or even a trial signup.This also gives a measure of how many potential customers are interacting with the product.
Before pitching a startup, the product must meet some expectations to generate investors’ interest. It is critical for startups to have indepth research on the viability of the product. The next task of startups to be technologically ready is to track customer on boarding. A beta version is always recommended to evaluate customer reaction and fine tune the product before its official launch.
For a business to succeed, one must understand the market intricacies that the product will be constrained or enabled by. The sectors of operation are crucial to any start-up, and the newest trends will influence the performance of the product in the current environment as well as cause further improvements in its current product or service. The startups in T-Hub focus on sustainability, FinTech, social mobility, HealthTech, SmartCity among others.
The prominent business models for B2B are the subscription model and the freemium model. As far as the subscription model goes, B2B can benefit from this as much as B2C startups do, by increasing customer retention. In today’s cut throat commerce landscape, customer loyalty is worth the upfront investment.
The other popular model is the Freemium model, but the requirement for it is a huge market due to low conversion rates usually ranging from 3-10 percent. The flip side of this is that when you’re trying to build a brand and a user base, the freemium model makes it easier to get exposure, a base of quality leads, the potential of high virality and a builtin sounding board for essential user feedback.
Having an idea is not the only thing required to attract investors. A lot of different things play on the mind of investors before investing in any startup. Other than these metrics, there are several different ways for a company to get more funds.
There is a greater likelihood that VCs who are more familiar with entrepreneurs are more likely to invest in them. Usually, at the nascent stages of a startup, the business model of the start-up might be overlooked if the team is healthy and there is a belief in the leaders’ passion and execution skills. It is critical for any start-up to be able to defend the reason for their existence and why the startup is essential for a better future. The strength of the business numbers determines whether the emphasis is to be laid on it or not.