Similar phases can be observed time and again in the financing of start-ups. From this, we can deduce a model for the typical stages of development of start-ups, which differs from the creation and long-term support of ordinary companies.
It is only in a few rare cases that a single investor ensures that a start-up is capable of acting. Support from several independent financial sources is widely common: different donors whose pooled financial aid subsidizes a start-up over a long period are not uncommon. If the company is successful, it gradually goes through various stages of financing, during which the amounts paid continue to increase.
There is a difference between the early “ Early Stages ” stage (split into the “Seed-Phase” and the “Start-up Phase” phase) and the “ Expansion Stages ” stage (which includes the growth phase and transition phase) and finally, the final step “ Later Stages ”. What are the distinctive features of these funding phases, and what do donors offer in each case? So let, see four types of funding for startups.
Early Stages: the financing of the start-up
If you are still in the early stages of your start-up, you will need seed money to get started properly. The exact amount you will need depends on your business start-up plan. Above all, it is a question of c concreting the idea of your start-up and considering the possibilities allowing it to be carried out (seed funding phase).
It is only afterward, in the so-called start-up phase, that you will be able to develop the final product (the good or the service that you offer). Also, you will take care of the organization of the processes necessary for its marketing.
Seed phase: seed funding
At the beginning of every business, there is a business idea. In the seed funding phase, you focus on it in detail and specify it. To be able to secure the financing of the company as quickly as possible and the continued support of your start-up, it is advisable to draw up a business plan. This will allow you to convince investors more easily by your concept and encourage them to invest in your start-up.
Market and target group analysis help to develop a suitable business plan for the future. Additionally, discussions with relevant industry partners can help you revise and bring your business idea to fruition.
During the start-up phase, you should also take a close look at how your team is organized. In particular, you must define whether you need to strengthen your team or require additional expertise to implement your start-up. Ultimately, it is not only the business plan alone that will convince investors and creditors, but above all, the people who support it and their know-how. You greatly increase your chances of getting a grant if the team has all the necessary skills and competently presents themselves to potential investors.
Making contacts in your industry can be another important contribution to the future of your start-up: you can benefit from the experiences of other people in the field of financing and business creation and possibly find the missing piece of the puzzle. It is during this networking that many founders have already met people who were also enthusiastic about their business project and therefore contributed to its creation, either financially or through their expertise.
Besides that, it is important to discuss the start to have a forecast idea of the money needed for the implementation. Secure funding and planned not only demonstrates a professional way of working but also shows your investors how much is the share of the total estimated required financing for startups. Always keep in mind that start-up grants are still a huge risk for investors. Thus, you must constantly demonstrate the greatest possible transparency and convince them that your projects are promising.
Equity capital: some founders use their savings, which they use as capital for their start-up. However, full financing through its savings remains an exception.
An enthusiastic and wealthy family, friends, and individuals: people within the family and friendly circle can also provide financial aid for business creation so that the start-up has more equity capital. However, members who are attracted to the concept of the company can invest in it as well. This group is called in English “Family, Friends and Fools” (FFF). “Fools” meaning “Idiots” but this is, of course, to be taken in the second degree: when the financiers in a thoughtless way make money available to start-ups (for example, because they can not be more convinced by the idea of the company or find the founder sympathetic), they quickly overcome the weaknesses of the start-up and therefore the risk of the company.
Business Angels and business incubators: thanks to cooperation with Business Angels, business creators have the possibility of obtaining financial support but also advice. Business Angels support companies in which they see a lot of potentials and a chance for long-term profit. They then become mentors of the founders. In addition to the contribution to equity capital, they also bring their knowledge in the field and their network of contacts. They are thus part of the company and become the co-owners of the start-up. For-profit business incubators do the same.
Public grant programs: Business creators can also apply for available grants to start their business. Much of this financial aid for business creation comes from state subsidies, but some also come from private sector institutions such as banks. Besides traditional funding programs, participation in a competition for ideas or business plans in the seed phase is also an option to consider.
Funding through the crowd: also, crowdfunding, crowdinvesting, and crowdlending can contribute to the financial support of your start-up. If you decide on such a campaign, you will need to take the time necessary for its professional preparation. The presentation of your project on the website should be detailed but not too long and ideally include a high-quality video image.
Credits for creators and mezzanine funds: You can already find out about business loans for start-up creators and the mezzanine fund, even before you officially start your start-up.
Beginning phase
The start signal of this phase marks the start of the start-up. During this phase, it is above all about controlling the entry of your company into the market. Here you have to keep developing your products and then start developing a prototype. What is more, you need to expand the necessary infrastructure (development, research, production, distribution, etc.). In this step, you will normally decide whether to finalize the design of your products yourself or to outsource it to a third party. You will also have to determine if you want to regulate the sales administration independently or outsource it.
In addition to product development and general conditions, customer acquisition is now at the center of the work: the first marketing campaigns can be launched, and advertising can be placed. Also, it is necessary to plan in detail how the start-up will be financed in the years to come. Such a road map not only gives a direction with which you can assess the current financial situation at any time but also helps you in your search for new financial backers and original creditors.
You shouldn’t expect any benefits during this phase, either. At the start of the start-up phase of the start-up, you will always be in the red due to the investments mentioned above. It is, therefore, important to find investors who share your vision and believe in your concept.
The start-up stage typically ends with the launch of the product on the market. For some companies, however, this development stage ends when they reach the break-even (the “break-even point” in English): this is where is your start-up is the costs and revenues arising from the manufacture and distribution of your product are compatible with each other. That is, you do not make any loss or profit.
The start-up phase lasts approximately 1 to 3 years. Costs increase in this phase since, in addition to setting up your product, you usually need to raise more money for new employees and campaigns. To meet additional expenses, business financing is often sought during this phase of development, which generally comes from institutions similar to those in the seed phase.
Start-up Sponsorships: Business angels and private sector start-up incubators are often willing to accept businesses already in operation.
State grants for already established start-ups: although many public aid programs and start-up competitions are aimed at companies that are not yet on the market, there are also grants for already established companies. While few go directly to existing start-ups, some business plan programs and competitions also accept applications from start-ups that have been in the market for a year or two. As a general guideline, we can say that the company should have existed for only 1 to 2 years, a maximum of three years, to still have a chance to obtain public subsidies.
Support through crowdfunding: The start-up phase is best suited for financing through people who are convinced of your business and want to contribute. Especially when it comes to crowd investing and crowdlending, you benefit from the fact that potential investors perceive investing in your start-up as less risky following a successful start-up.
Start-up loans and mezzanine funds: even after setting up your start-up, the majority of you can still apply for a start-up loan. Also, the mezzanine fund exists for companies already experiencing growth but requiring additional funds to continue it.
Venture capital: Some venture capital firms are already investing in start-ups at a relatively early stage. In this case, it is necessary to apply as soon as possible, as it can take up to 12 months before a final decision on financial support for starting a business by a venture capital company. Is taken.
Expansion phase
Following the successful entry into the market, you should focus on expanding your start-up. This stage, known as the expansion stage, is divided into two parts: the growth stage and the transition stage.
Growth phase
During the growth and development phase, you need to make every effort to establish your product in the market. To guarantee its availability, distribution and production often have to be stepped up. So you need to invest more money in marketing to keep promoting the product. If the action is successful, the demand will increase, increasing the turnover of the start-up.
It is not uncommon for the number or size of competitors to increase as well. This is especially when a start-up operates in a market segment that did not exist before or only to a certain extent but is established now and is being imitated. The general rule is this: the more competition there is, the more capital the start-up needs. Often, this is the only way to get your product to a large audience and gain an edge over your competition. Therefore, you should invest more money in production, distribution, and marketing during this phase.
During this phase of development, many founders expect to make a profit from the company. However, a few start-ups will not yet be in a positive surplus during the growth phase. When a start-up wants, for example, to achieve a high penetration of the markets, which incurs many costs at the beginning but will be profitable later, then profits do not need to take place during the growth phase.
The Digital Hub 