Financing in Startups. From the Idea to Business Success

The journey of a startup through its various stages of growth is like an exciting voyage filled with challenges and opportunities. Just as the development stages evolve, the financing they require also follows a dynamic path, adapting to the changing needs at each phase of the company's life cycle. This article explores how startups navigate through different investment rounds and how these contribute to their success and growth.

The Beginning: Seed Capital and Investment Rounds:

Every great company has a humble beginning, and startups are no exception. The initial phase, known as "Seed Capital" or "seed" phase, is where ideas take shape and turn into business realities. In this stage, one the one side, entrepreneurs may seek investment from themselves, also known as "Bootstrapping".

In this regard, there are two major reasons why founders opt for "bootstrapping": to retain ownership and control of the company and to cultivate sustainable growth. Venture capital, accompanied by investor expectations of rapid month-over-month expansion, can lead VC-backed startups into the pitfall of burning cash to acquire more customers.

On the other side, in this stage, the founder team may opt for Business Angels or even from friends, family, and close contacts, also known as "FFF (Family, Friends & Fools)". These initial investors are willing to take risks in pursuit of promising opportunities, but the do it for the project but also, and most important, for the trust they have on the founder team because of their previous relation.

Investments in the initial phase typically range from €50,000 to €750,000. In these rounds, Business Angels, Accelerators, or Private Investment Vehicles invest.

Laying the Foundation: Series A, B, and C Rounds:

As the startup starts to establish itself, the need for more substantial funding emerges to drive its growth and expansion. Series A is often the first encounter with external investors, where around 1 to 5 million euros are sought to attract talent, generate initial revenue, and strengthen the company's position.

Business Angels and other private investors join in with hopes of solid short-

or medium-term returns. By the time a startup raises a Series A, it has already crafted a product and a business model, aiming to demonstrate to investors its capability to generate long-term profits. Some startups bypass the initial funding round and dive straight into raising a Series A. This often happens when the founder holds credibility, prior market experience, or possesses a product with high potential for rapid scaling through proper execution (such as business software).

Series B comes into play when the startup has already demonstrated profitability and aims for more accelerated growth. Here, a more substantial capital injection is sought, typically between 5 and 20 million euros. Major investors and venture capital entities come into action, sharing the vision of taking the startup to the next level.

As the startup matures and becomes a consolidated entity, Series C takes the stage. This investment round, which can generate between 20 and 250 million euros, focuses on acquisitions, developing new products, and preparing the company for future phases, such as the desired initial public offering (IPO). The startup's specific needs guide the search for investors to ensure sustainable growth.

In an Initial Public Offering (IPO), a company previously backed by private investors offers its shares to the public for the first time. IPOs are often regarded as the optimal exit route, as they enable founders to maintain managerial control while shareholders reap substantial gains.

Bridging to Success: Bridge Round and Beyond:

The bridge phase is an interlude between investment rounds that provides more resources to accelerate growth and achieve even more attractive metrics for future investments. It's a strategic step to strengthen the startup's position before facing new rounds.

The Ultimate Success: Initial Public Offering (IPO):

The culmination of this exciting journey is the IPO, where the startup takes a leap into public listing. This phase allows original investors to recover their investments, while buying and selling shares becomes accessible to the general public. The startup has become a major player in the market and establishes itself as a reference company in its sector.

Alternative Path: Financing Diversification:

While funding rounds are a common path, startups also explore other sources of financing. Some choose to maintain financial control by balancing private funding with public offerings. Others venture into crowdfunding, collective financing, or crowdfunding, creating a community of committed donors without the traditional investment expectations.

Success Lessons: The Case of Glovo:

An inspiring example is the journey of Glovo, which started with a Series A in 2016 and culminated in a Series E in December 2019, raising a total of 167 million euros. This "unicorn company" achieved an exceptional valuation, demonstrating how strategic financing can transform a vision into a global reality.

To sum up, the evolution of financing in startups reflects the growth, challenges, and triumphs that mark their trajectory. From Seed Capital to IPO, each investment round propels entrepreneurs' visions and turns ideas into business realities.

By exploring diverse funding sources, startups have the flexibility to shape their future and reach new heights in the ever-changing business world.