Funding is the Source of Financing for Startups, Discover Its 6 Stages
Funding is the Source of Financing for Startups, Discover Its 6 Stages
In the financial world, there are two terms that the public should know: funding and lending. These two terms have different meanings. If funding is about raising funds, lending is about disbursing funds. Both funding and lending are needed for companies, especially in the startup world. So, which one is more needed by companies?
To find out more, this article will specifically discuss the definition of funding. It will also explain the sources of funding from banking and startups. Lending will be discussed in the next article.
Definition of Funding
Funding is an English term. When translated, it means funds, capital, or savings. Specifically, funding is the activity of raising funds or capital by financial services such as banks, cooperatives, and the like. However, in a broader sense, funding is the activity of collecting funds from the public in the form of financial products.
Financial products can vary, such as deposits, savings, current accounts, bonds, and the like. When the fundraising activity is completed, the public will receive rewards and security guarantees for their deposits. To ensure public confidence, all deposits through security institutions are regulated by the Financial Services Authority (OJK).
Therefore, all financial activities aimed at collecting funds from the public are called funding.
Sources of Funding for Startups
Based on the e-Conomy SEA 2021 report released by Tamasek, Google, and Bain & Company, the digital economy value in Indonesia reached US$70 billion in 2021. This figure is estimated to double by 2025. Looking at these numbers, there is a bright prospect for investors who want to donate their funds to Indonesian technology companies.
To get to know what funding sources are available and how the stages of startup funding work, here's the explanation:
- Seed Funding
This is the earliest stage for startups to obtain funding from venture capital. Like seeds, startup companies must be ready to manage them well to achieve optimal results. For initial funding, startups will receive funds from venture capital ranging from USD 50,000-60,000.
If they can manage these funds well and even reach their target market, startups usually will receive further funding injections. - Series A Funding
If business growth goes well and according to plan, startups will receive additional funding and move up to Series A startups. Upon achieving this label, startups will receive funding ranging from USD 600,000 - 3,000,000.
Increased capital requires companies to have more responsibility. One of them is to introduce product innovations to achieve maximum profits. - Series B Funding
If a startup can meet the targets set in the Series A Funding level, they are eligible to apply for funding again. If successful, the startup will receive funding between US$ 5,000,000 - 20,000,000. However, it's important to note that the startup has been operating for 2-3 years. - Series C Funding
The development of a startup's business will increase along with the number of competitors. However, the rapid pace of business depends on how a startup can achieve its targets. If a startup can meet the Series B Funding level, the injection of funds will increase.
This injection amounts to US$ 25,000,000 - 100,000,000. With such a large amount of funds, the company's responsibilities also increase. This is compounded by the expansion model, which will become wider. - Series D-F Funding
Before entering an Initial Public Offering (IPO), there are several stages that must be passed. After the above explanation of Series A-C Funding, the next is Series D-F Funding. This is because not all startups can lead to an IPO.
Consistency, expansion efforts, and a continuously expanding target market are some of the reasons that startups must fulfill before reaching the IPO level. Moreover, in stages D-F, the injection of funds is certainly larger than before, reaching hundreds of millions of dollars. - Initial Public Offering (IPO)
This is the final stage of startup funding. If a startup reaches this level, it is eligible to enter the stock market. However, to reach that point, the company must maintain its consistency in managing finances for 5-10 years. Thus, the startup can be said to have reached the perfect level.
If funding is the way companies invite the public to raise funds, then your company can implement something similar. To ensure your business continues to operate optimally, use Brick to connect with digital financial services. Utilize Brick's loan service solutions to make the verification process easier and faster.
