{"id":1307,"date":"2014-10-09T10:00:39","date_gmt":"2014-10-09T08:00:39","guid":{"rendered":"https:\/\/startupxplore.com\/en\/blog\/?p=1307"},"modified":"2020-04-15T19:17:12","modified_gmt":"2020-04-15T17:17:12","slug":"types-startup-investing","status":"publish","type":"post","link":"https:\/\/startupxplore.com\/en\/blog\/types-startup-investing\/","title":{"rendered":"Understanding differences in startup financing stages"},"content":{"rendered":"

The startup funding<\/a>\u00a0landscape has changed significantly over the past few years in Europe. While five to ten years ago the options available to startups were few, lately we’ve witnessed an important surge in Venture Capital available for startups<\/a> at all stages. From seed to growth, from Series A to Series C.<\/p>\n

This increase in capital has been accompanied by the creation and development of alternative financing\u00a0vehicles<\/strong> such as crowdfunding, investment syndicates and new and fresh Venture Capital firms that bring different approaches to the market. With this post we’ll analyze what types of fundraising vehicles are being used at the different stages of a startup’s life.<\/p>\n

Startup financing at the early stage<\/h2>\n

Pre-seed capital<\/h3>\n

\"startup<\/a><\/p>\n

You have an idea, maybe a working prototype and are looking for funding that will allow you to focus on your project full time. Pre-seed capital tends to cover the first stage in the life of a startup and is often compromised of three main sources of financing:<\/p>\n

– FFF (Fools, friends and family)<\/strong>: the three classical Fs that at Startupxplore we’ve explained and provided with their very own FFF profile<\/a>.<\/p>\n

– Business angels<\/strong>: previous startup founders who have had exits and decide to invest\u00a0the money in other startups (or their own) or investors that despite not having a tech-related background decide to back companies in the space, given their potential growth and current market situation. Contrary to Venture Capital firms, business angels<\/a>\u00a0often invest their own money and at one of the most riskiest stages for startups, thus their importance in every single startup market.<\/p>\n

– Accelerators<\/strong>: five years ago there were barely any startup accelerator programs<\/a> in Europe (with the exception of Seedcamp<\/a> and a few others), but these days there’s an accelerator in every single big European city<\/a>. These organizations provide capital, mentorship and office space to teams in exchange for 5 to 10% of equity. TechStars<\/a>, Startup Sauna<\/a>, Plug and Play Valencia<\/a> \/ Berlin<\/a>, SeedRocket<\/a> or the aforementioned Seedcamp are some of the most popular European accelerators.<\/p>\n

Seed capital<\/h3>\n

\"startup<\/a><\/p>\n

Seed capital can be described as the capital necessary to start a company and to try to find product-market fit. European seed rounds range from \u20ac250K to \u20ac750K or \u20ac1 million. The main providers of capital at these stage are business angels, super angels and early stage Venture Capital firms. However, in recent years more players have joined the game in Europe and are, in theory, improving the ecosystem.<\/p>\n

– Crowdfunding<\/strong>: there are two types of crowdfunding that are closely tied to startup investing. For hardware startups and creative projects there’s what’s often called ‘reward-based crowdfunding’<\/strong>, where sites like Kickstarter and Indiegogo are global leaders. Users can back the projects they like and get something material in return (physical or digital products and services), receiving no equity from the teams or companies providing such goods.<\/p>\n

The other kind of crowdfunding that’s relevant for startups is equity crowdfunding<\/strong>. As the name indicates, in this instance backers (investors) of the companies get equity in return, thus becoming shareholders of the companies and being able to participate in the future returns the startups might be able to provide to investors. This type of investing is often carried by platforms that serve as aggregators, choosing startups and inviting backers to invest in them through the platform, which get to charge a fee per deal closed.<\/p>\n

Finding the right startups and investors was never this easy. Give it a try at Startupxplore<\/a>!<\/p><\/blockquote>\n

There are a wide variety of equity crowdfunding platforms in Europe, but the most popular are Seedrs<\/a>, Companisto<\/a> and FundedByMe<\/a>. It’s interesting to highlight that equity crowdfunding regulation varies from country to country within Europe, which can be\u00a0a hurdle for investors and startups interested in raising money this way.<\/p>\n

– Syndicate investing<\/strong>: the idea of a syndicate is to let angel investors syndicate deals with each other. This means that angels with good track records can lead investments in early stage startups and allow other angels to co-invest, providing additional capital to the financing rounds. The advantage for the three parts involved are simple to understand:<\/p>\n