Investment is crucial for startup owners and they meet every interested party who might turn into a potential investor. There are different rounds of investment and in this blog, we will outline the 5 different rounds of investment that an investment seeker should be aware of.
So, you have a firecracker in your hands! But need more resources to convince or ‘ignite’ the same fire in the investors around you. It is just an idea so usually, people don’t see it with the same passion as you. This is the Bootstrapping stage. The investors usually are the co-founders or close relatives and friends who have an interest in the business idea and believe that it can go places. There is no certain amount of time that can be determined as a means of valuing this stage.
Upon infusing effort, time and money into a particular idea, it has now bloomed and produced a seed! A seed that can germinate into various other prospects. This is the official stage of acquiring equity since we have something “tangible” in our hands and it is beyond the drawing board phase. This is also the phase that requires a lot more investment, time and looking after and it is no consolation that this is very risky since there is no surety of whether the idea would sprout into something magnificent and fruitful or rot away in the soil! So, in business terms, this is the market research and product development stage. A lot of investors such as business incubators, venture capitalists and angel investors like to participate in these types of riskier stages of a business.
3. Round A
Now that there are some firm roots in the ground, probably consistent revenue figures or established a firm user base in your area, as well as have strong key performance indicators from your startup, you might like to circulate your product or service to other markets. There might be costs involved but why would anyone incur extra costs without first studying the market and then seeing whether it’s worthwhile for the product to be circulated. A business plan should be prepared to find opportunities in other markets. Investors would love to see how a company prepares the strategy to ensure long term profits. At this point, you need more investors to leverage your product or service. Since it did well in your market, the revenues would scale if other markets are also tried out. But there comes the added cost which would require more equity. And how to do so? Prepare a winning business plan!
4. Round B
This is when your product is enjoyed in various markets. There certainly needs to be a larger team to meet customer requirements, process complaints, ensure that the product is adequately advertised and that there is more tech support. Your product or service is doing extremely well but you need to monitor its success graph by hiring more talents. Investors like investing at this stage. It is safer. The product is already doing so well. All that is needed is the back support to ensure that the product or service is kept floating and there is greater monetization. So the stronger the “branches”, the better the expectation for longevity.
5. Round C
With everything going so well, maybe it’s time to erect more subsidiaries. The fruits of your tree lead you to more seeds that can be planted in different locations. Subsidiaries in more locations mean more equity. Seeing the progress reports of your company accompanied by the auditors’ reports, investor relations reports, and all other financial documents, any investor would like to get a share of the pie.
How can you find an investor?
Keep these documents handy!
Pre-Seeding – Make a convincing investment deck. Ensure that you spell out your own credibility, like your education level, any other idea of yours that had taken off and made huge profits.
Seeding – If you do have a prototype of a product, then it would come in handy. But this is usually the market research phase. Research and find similar products that have taken off. Use it as a backing for your product. Also, ensure the quality of the product is not compromised as this will be the deciding factor for the next round of seeking investment. Angel investors and venture capitalists would like to invest during such stages.
Round A – The product is doing well. You need to distribute it in other markets and hence need investment. Ensure that you have the Key Performance Indicators (KPIs) and measuring your user base is in place. These are strong performance measures. A strong business model also needs to be in place which shows monetization.
Round B – The larger the reach, the greater the number of hands to be on deck to ensure that the product does well. Talent acquisition is important, therefore provide thorough analytics of where and how you need talent. Needless to say, other costs do incur with talent acquisition such as equipment, workstations or health benefits, and other employee-related costs.
Round C – Audit reports, financial statements, investor relations reports, and any other legal or financial documents that will bring in more investors.
So, these are the 5 rounds of investment that you need to be aware of and also the documents that you would like to share with potential investors on Alumni Alliances. Go ahead and find your investor!
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1. Featured Image – Mohammed Hassan