Funding is the act of providing resources to finance a need, program, or project. While this is usually in the form of money, it can also take the form of effort or time from an organization or company.
Generally, this word is used when a firm uses its internal reserves to satisfy its necessity for cash, while the term financing is used when the firm acquires capital from external sources.
Every business requires capital costs to develop its business. The problem is, not all business people have sufficient personal savings to be used as capital. That is why many business people decide to seek funding, which is generally provided by Venture Capital (VC) companies. To be able to get it, business people must be proactive in approaching VC in order to be able to pitch.
Well, providing funding has several stages. Each stage provides a different amount of funding, starting from seed funding which is the initial stage until finally the business can be registered in the Initial Public Offering (IPO).
Fund Management Prosses
Funding provided to businesses, especially startups, comes from investments provided by people who have capital, insurance companies, and pension fund management companies. So, apart from investing in assets like stocks and real estate, they also allocate 10% of their money to invest in riskier instruments, namely startups. Usually, they channel their investment as VC funds.
Previously, the VC would first determine the amount of funding and tell startups they could invest in. These conversations usually result in an offering memorandum to help investors put their money into VC funds. At this stage, investors will become a limited partner (LP), where funds are managed by the general partner (GP).
When the funds have been collected, GP starts looking for opportunities to invest. They are actively looking for businesses or startups that are promising and have good opportunities for investment. The funds raised will be managed to be invested in certain startups. In return, investors will get a share of the profits as much as a percentage each year.
Several stages of receiving funding
As previously explained, VC funding generally consists of several stages. Each stage has a different characteristic and amount of funding.
1. Seed Funding
The first stage of funding that startups can get is seed funding. Generally, the amount of funding provided can reach Rp. 500 million to Rp. 2.5 billion. The aim of providing seed funding is to find out about the potential of the product being made by the startup as well as to identify the target market it is targeting. Typically, startups use this seed funding to start recruiting staff and renting or buying offices.
2. Series A
If the startup product has reached the beta stage and is ready to be used by a number of target users, usually the startup can get series A funding.The amount is around Rp. 10 billion to Rp. 33 billion. Series A funding is usually used by startups to scale products as well as determine the right business model to apply.
3. Series B
At this stage, startups usually already have a strong enough user base to make a profit. Most startups also usually release their final product when they get series B funding. Generally, the amount of Series B funding ranges from Rp. 22 billion to Rp. 80 billion and will usually be used to expand the user base, expand the market, and optimize business models.
4. Series C
Startups that have successfully reached this stage usually have fairly mature business conditions. The funding funds obtained will be used to expand products to open branches nationally and internationally. Series C funding amounts typically range from $ 25 million to $ 100 million.