Being an entrepreneur combines aspects related to personality and training.
Although it is possible to be born with a predisposition for entrepreneurship, learning and training are essential to achieve success.
It is essential to study and evaluate the processes beforehand in order to optimize resources and time.
Although one's own experience is one of the ways to learn, sometimes it comes late and is expensive.
The propensity or aversion to risk and the willingness to venture may be natural and common traits in most entrepreneurs who are born with certain qualities, and are made through their experience and training .
On this occasion we present some of the traditional stages to face the financing of a project that is being initiated or "startup".
This information will be useful to order and guide efforts when going out to look for money to start and grow our investment projects.
Pre-Seed Phase:
In this initial phase, the startup has only an idea without a defined business model.
The main objective is to create a business model.
The valuation of the company is usually below one million dollars, and the dilution is around 10-15%, understanding as such, the part that the investor will claim for the money he/she contributes.
The most common investors at this stage are business angels, some state programs or accelerators, it is usual to find at this stage family or friends who support the entrepreneur and his initiative.
Seed Stage:
In this stage, the business model is already defined and the startup begins to obtain operational results.
The objective is to focus on growth and demonstrate metrics that attract investors.
The average valuation is $1.7 million, with a 15% dilution.
Investors are similar to those in the pre-seed stage.
Bridge Round:
This stage occurs when the startup has closed a seed phase, but in those 12-18 months has not achieved the financial purposes expected of it, it lacks to generate more sales, customers, etc. to qualify for a Series A round, therefore, it resorts to this type of bridge round. The financial purpose is to scale metrics and increase the team.
Early Stage
This stage is when the startup already has a high growth potential and its operating revenues exceed costs, so it needs a Series A and Series B round of funding. One of the main forms of financing for startups in this stage is through Venture Capital, a financial operation in which capital is provided in exchange for a percentage of the company. For this, the startup's objective is to scale metrics, show an attractive return for investors and expand the team.
Series A Capital: Usually, between 1 to 5 M is required to continue with the project.
Series B Capital: From 6 to 20M to boost the venture's growth.
The objective is to generate a kind of operating cushion of at least 6 months, and the equity of these rounds ranges from 5 to 10%.
Growth Phase
At this stage, the startup is already mature and has positive numbers and a defined growth strategy. The objective of this phase is to focus on growth and increase profit and the number of customers. For this phase, the so-called Series C round is used, where external financing is important and the most common comes from Big Funds such as investment banks or private equity firms that offer up to 20M.
The returns associated with each stage of investment are obviously related to the risk involved.
Those who enter first aim to multiply their contributions, while those who enter last aim to receive a reasonable return margin.
In the world of Startups we find a frequent and feared concept, "the valley of death", however this topic will be the subject of another note, in which we will pay special attention to the general aspects that we must observe before investing in a high-risk company.
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