Funding rounds in startups

Internet startups are different than regular small businesses. In an internet startup you don’t have assets, you only have a bunch of people working on their laptops hoping to build a product that people will use. You don’t need to buy a machine or build a factory. You don’t need to rent a shop or even to establish a company. So the only cost you have is people, in other word salaries. And if you are a programmer and your friend is a designer for example, then you can build your business for free!!! And that’s the beauty of online business, you can start any where any time with a small amount of money.
But, you’ll say OK, I’ll still need some money to survive and pay my bills. True, so how does the fund raising process goes for a startup. It goes through the following rounds:
1.Seed funding
2.Series A & B
3.Sometimes series C & D

Seed funding: in this round startups get between US$20,000 to US$100,000 in funding. The money is for your startup to cover its expenses (mostly salaries for founders team) for 6-8 month. The company is considered in a very early stage and the product is still not fully developed and the idea is still not tested. It is also called the Searching Stage because in this stage the startup is still searching and discovering its customers, market and business model. Basically all you have is built in assumptions, and you are given some money to survive for around 6 months to validate these assumptions. Most of the investors in this stage are either Angel Investors or incubators. Also you always can raise some money in this round from the three F’s: Friends, Family and Fools.

Series A/B: Startups get a varied amount of money in this round, it all depends in the founders reputation, market type and the potential opportunity. Usually its something between US$100K and US$10M. The money raised is for the company to cover its expenses for a period of 12-18 months. This stage is also called the Building Stage. In this stage you should have validate most of your assumptions and you have a much better idea on your final product, customers and business model. The focus here should be in hiring more engineers and building the product. Investors in this round are early stage VCs or a group of Angel investors.

Series C/D: This is considered a late stage round. Money raised here ranges from US$10M to US$300M. This stage is also called the Growing Stage. In this stage most of the money is spent in acquiring new customers and expanding to new markets. Investors in this stage might be Late stage VCs or Private Equity companies. Their goal is to prepare the company for an IPO to make crazy big money.

The slide below summaries the whole funding rounds. Click here to see in slide share.

Lately we saw many interesting investment activities happening in the MENA region and many high quality VC companies. For example N2V from Saudi Arabia, Oasis 500 from Jordan, Riyada Enterprise – Abraaj Capital from UAE. However, we don’t have any good VC company in Kuwait 😦

But, honestly money is not the biggest problem we have here in Kuwait. The problem is with the ecosystem and our mentalities. More about that in later posts…..

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3 Comments

  1. Thanks for sharing your thoughts about Ingenieur. Regards

    Reply
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  1. The Stages of funding a startup |

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