Funding in the new economy: differences that some do not still understand 

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Bernhart Farras

Edited by Dian Noeh 

As the new economy grows and startup companies are rising, one of the changes in-game is funding. Conventional companies and startup companies are very different both in foundation, structure and how they secure capital funding. 

Conventional companies tend to start a business with internal capital and then finance their sustainability with money generated from sales. They get funding derived from profits or profits generated from the results of their operations. Meanwhile, startups are inclusive, breaking the norm and get funds from investors like VC (venture capital) and angel investors who believe to invest in startup companies. 

Venture Capital and Angel Investor give investment to startups when they see a big potential in developing startups scale. VC and angel investors have differences in terms of stages. Angel investors mostly come from close friends and family who are willing to invest in the pre-seed up to seed funding stage while VC is a group of non-family related investors who are willing to invest in seed funding to series.

Funding generally consists of several stages, each stage has different characteristics and amounts of funding:

  • Seed Funding

The first stage of funding that startups can obtain is seed funding. Generally, the amount of funding provided can reach US$500 million to US$2.5 billion. The goal is to provide seed funding to find out about the potential products that are being made by startups while identifying the target market that is being targeted.

  • Series A

If the startup product has reached the beta stage and is ready for use by a number of target users, startups can usually get series A funding. The amount is around US$10 billion to US$33 billion. Series A funding is usually used by startups to do product scaling while determining the right business model to be applied.

  • Series B

At this stage, startups usually have a user base that is strong enough to be profitable. Most startups will also usually release their final product when getting this B Series funding. Generally, the amount of series B funding ranges from US$22 billion to US$80 billion and will usually be used to widen the user base, expand markets, and optimize business models.

  • Series C

Startups that succeed at this stage usually have a fairly mature business condition. Funds raised will be used to expand the product to open branches nationally and internationally. Series C funding is typically US$25 million to US$100 million.

  • Initial Public Offering (IPO)

If it reaches the initial public offering (IPO) funding stage, then your startup is ready to go public. That is, startup shares are sold on the stock exchange. Of course, it takes a process that is not instant for a startup to reach this stage. Ideally, a startup takes 5-10 years to finally be ready and brave to do an IPO. The government itself encourages startups to make an initial public offering (IPO) in the stock market to raise funds. This method is considered easier for startups to get funding.

What is the underline? 

One of the important roles in the process of getting fundraising is to find and choose investors. This search process requires extra energy, especially the startups that are developed are still in the initial phase or not too busy to talk about. Many investors are interested in startups in this phase, but the potential to become one of the things that must be considered.

In addition to contacting investors through official online channels, be it email or other, the process of finding investors is more effective through offline events. We can go through exhibitions or visit other startup events. Networking also has an important role in the process of finding investors.

Other offline events that can be tried are competitions or incubator programs which in recent years began to be held in Indonesia. By being able to penetrate the selection at these events, startups can get closer to investors. 

Startups also need to understand that beyond number, business is about trust. Therefore numbers, business models and scale-up plans need to be accompanied by founders’ reputation too.