Startups and financing

Have you ever thought about creating your startup? If you have a new concept and you know that it can be very useful, venturing into a startup could be the solution. However, you will need to do extensive research, create a business model, and verify market value. Many startups end up obtaining capital from external financing. Major stakeholders then invest in the new companies in exchange for equity, percentage of shares, or partial ownership. It is up to the startup owners to decide whether they want such cooperation or not.

If they agree, they go through different rounds of financing. These include Pre-Seed, Seed, Series A, Series B, Series C, Series D, and Series E. Many burgeoning startups tend to apply for seed funding or funding from angel investors before they become established. It’s also not that easy to get outside funding, but with the right proposal, proposed projects, and vision, it gets easier. To the extent that investors provide financing, they still aspire to long-term profits based on their deals. The first stage is pre-seed funding, it is the period where the founders try to stabilize the company with the capital and resources they have on hand.

They first seek the support of family and friends, in addition to their savings. Due to the shortage, they cannot do much at this stage. It also depends on the general perspective that the founders want. Large investors have not yet joined. This is followed by seed funding. This is the first official stage of equity financing. It represents the first money the startup receives. In the pre-seed, it is the capital of the founder with the help of family and friends.

However, the seed funding involves external stakeholders. This capital helps the company to take its first stable steps. This allows the founders to conduct market research and develop the product or services. Some potential investors may include founders, family, friends, venture capital firms, and incubators. With seed funding, one company helped determine end products and target location. The seed funding is used to employ a founding team to complete these tasks. However, it may not seem like enough, therefore they may move on to the next round of Series A funding.

Series A funding helps further expand start-up and product distribution. They may have started with a few products and want to expand further. Once at this stage, it will be important to develop a business model that generates long-term profits. Investors don’t just invest in an idea, but in a progressive company. Additionally, some startups may use equity crowdfunding to raise capital in the Series A round.

A startup then proceeds to Series B funding. At this point, the startup has already grown and is working to have a bigger market and increase its range. Investors therefore help startups meet the growing demand for their products. When they started, they may have been in a smaller target area, but over time, as demand increased, they needed more production, which also led to the need for more raw materials. There will also be the need to leverage sales, advertising, technology, support, and much more. In Series B, he discovers that the main investors are those from the previous rounds who are looking to help the startup grow and make more profit.

When a startup reaches Series C, it is already successful and has gone through several important milestones. However, they are still looking to raise more funds to even introduce a new product, diversify their market reach, or acquire other similar companies. The startup has already stabilized and they get funding from hedge funds, investment banks or private equity firms. At this point, it’s not just the founders; There is also a board of directors made up of the different investors involved. Most companies end their outside equity financing in series C since they can even generate their own money.

However, some others continue with Series D and E. Series D financing implies that the company has discovered a new financing opportunity before going for an initial public offering. They want to increase their value before going public. Financing here is mostly done by venture capital firms. If they still want to raise funds, they can go further to Series E. However, most companies end up in Series C and transition to an IPO.

Some choose to go into initial public offering (IPO). This is why a company can raise capital from the public. This helps diversify the sources of funds. It also becomes more visible. This is a big step as it opens the doors of the company to access to raise a lot of money. This makes it easy for the company to grow and expand.

Pakistan is very welcoming of new businesses. This is due to the opportunities available and the need to fill those gaps. According to the Q1 2022 report, the top startups were ranked as follows: e-commerce at 32 percent, FinTech at 16 percent, health technology at 11 percent, coworking at 11 percent, and education technology at 10 percent, others at 20 percent with each taking five percent. The potential found in these spaces makes more people want to live in them.

Some of the top offerings include Bazaar, which is a $70M B2B marketplace, Retailo, another $36M BnB marketplace, Jugnu, another $22.5M B2B marketplace, NayaPay, which is a $13M Fintech and Truck-it where it’s Logitech at $13 million. There are many companies that are still struggling to get to the top. Before the end of this year, there is an expectation of a breakthrough and increased revenue for different companies.

Startups are a big step in ensuring that Pakistan grows, helping economic growth based on the fact that they are centers of innovation. In addition, they also help create job opportunities and reduce unemployment. Startups are playing an important role in the growth of cities. Also, with technology revolutionized, many advancements are seen. This also leads to the increase of talent, the use of valuable resources and the opening of markets. Many young minds are more motivated to venture into new ventures because of the various help they can acquire. Over time, some impressive start-ups have been launched in Pakistan. Financing is also encouraged in Pakistan, and many startups are benefiting from it.

The author is CTO and director of the IoBM Information Technology Center.

He tweets @imranbatada and can be reached at: Imran.batada@gmail.com

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