What are seed funding phases

Financing phases: Startups go through these different financial requirements

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While some startups are able to assert themselves and establish themselves in the market, others are already failing because of the financing. Without a sponsor, most companies are left with their ideas and products. In order to found a successful company, a startup should therefore go through different financing phases in order to develop as best as possible.

Financing phase in the start: early stage

The early phase of a startup is often referred to as the early stage. The early stage is characterized by two further sub-phases that can be considered as a financing option depending on the company's situation.

Funding an idea: seed phase

First of all, a business plan needs to be drawn up during the seed phase and the development of an idea or project, which has usually not yet been completed, must be advanced. The aim is to complete the product at least as a prototype in order to carry out initial market-based tests. The capital required for this is usually covered by personal contributions, family or friends.

Finally business start: startup phase

As the second step in the early stage, the startup phase is a decisive factor for the future success of the company. Research and development must be promoted by hiring employees and making them familiar with working on the product. There are two main steps to be taken.

While, on the one hand, a marketable product is being developed, production and distribution channels must be clarified. The finances required for this are called venture capital. This capital to be invested is used both for product development and for setting up the basic corporate structures. Since the risks in the event of failure can usually not be borne by the startup, traditional loan financing is usually not possible. Instead, the venture capital usually arises from private loans, equity or government subsidies. In addition, capital can also be obtained through investment companies. For this, however, a meticulously worked out business plan and a prototype of the product should be available.

Basis of your development: growth phase / growth phase

The growth phase of a startup begins with the launch of the finished product. The focus is now on prompt penetration of the market. In order to make this possible, it is essential to set up sales quickly. Depending on the competition in the market, the capital requirements during the growth phase can vary greatly from company to company. The greater the competition, the more capital should be invested in the further development of the product and in building internal structures.

During this phase, primarily external investors who provide capital in exchange for company shares serve as capital providers. This usually takes the form of series financing, which is divided into several rounds. In the course of this phase, investors expect a significant increase in turnover for the company and a multiplication of the capital invested. If the company can meet these expectations, the financing is usually continued in the late phase.

Financing the financing: late stage

As soon as the product is established on the market and the basic corporate structures are in place, the late phase of financing begins. In the course of this phase, the necessary renovations have to be carried out and the product range expanded. The most important step during the later phase is the structuring or restructuring of the company management. It is not uncommon for startups to make the mistake that the founder or the founding team does not want to retire from management positions. However, since the company is very complex during the late phase and an expansion of the corporate structures is essential, the management should now be reinforced or even replaced by experienced managers.

The capital required for the later phase will be continued with a good economic development through the series financing of the growth phase. If the capital generated in this way is insufficient, bridge financing by credit institutions can help. Alternatively, the required capital can also be generated through an IPO. This step is usually the most sensible option for many companies during the late phase, as venture capital companies will withdraw from financing sooner or later.