What are funding phases


It feels like every second report that is about startups is somehow about money; Somebody has just collected a substantial investment somewhere, ideally a sum of millions in dollars. Using an overview graphic, we break down which financing phases startups ideally go through.

At the beginning of a startup there is always an idea, but unfortunately rarely a suitable amount of money is available to make it a reality. The first investments therefore mostly come from friends and relatives of the founders, referred to in the graphic as FFF (friends, familiy, fools). There are several complementary names for this very early phase. Early stage is self-explanatory, and Pree-Seed means the period before the first professional financing round.

In addition to the friends and relatives mentioned, grants are also available as possible sources of income, e.g. for students (in the graphic: grants) and startup competitions with mostly rather manageable prize money. These competitions are particularly suitable as shop windows to attract the public's attention. Business angels, for example, wealthy and experienced individuals who support young founders with money and know-how and who want to participate in the success of their business in return. This is where the seeds for success are set, which is why we also speak of seed financing. Alternatively and in parallel, there are public funding programs such as EXIST.

Once a startup has successfully taken these first steps, which in reality can extend over months and years, it reaches the Groth Stage, i.e. the growth phase. The need for capital is much greater here, and new players come onto the field accordingly. The most important of these are venture capital companies that have specialized in promoting young companies and that set up funds that can quickly reach hundreds of millions. Often several of them team up to minimize the risk, because venture capital does not mean venture capital for nothing.

Financing rounds that come about in this way and follow a seed investment are called Series A, Series B and so on and make the biggest headlines. Family offices, private asset managers who work as a banking alternative for wealthy families, are generally much more discreet. Commitment to startups in this area is still in its infancy, but could become more important given the lowest interest rates and the growing popularity of the topic.

The venture loan, a special form of bullet convertible bond, which is often used to bridge between two financing rounds, is available as an additional means of financing. In the later phase (later stage), there are also large, established companies as interested parties (noted in the graphic as corporate investments) who want to benefit from the startup spirit. This can even lead to a takeover and an exit for the previous shareholders. Which means that a startup would really have gone through all possible phases.

Top picture: venimo / 123RF