Definition and Types of Startup Funding and Trends in 2021

Funding is very much needed when starting a company, including in building a startup business. Funding is the fuel so that the business can start, run, and expand the business until the startup's goals are achieved. Because the bigger the funds, the more opportunities that can be done to develop a startup.

Therefore, it is important for a founder startup startups or the activist audience for the dynamics of the startup ecosystem in Indonesia, understand what startup funding is from? What are the types of startup funding? How will startup funding go in 2021?

Definition of Startup Funding

Startup funding is a way for a startup to obtain the funds needed to run a startup business, both main funding and additional funds that will be allocated to work on projects, programs, and so on.

There are two sources of funding, namely equity (shares) and debt. If equity funding, the company receives the investment from the owners who made the shares. While debt financing, the company becomes the borrower of funds that can be found starting from bank loans, corporate bonds, medium term notes or commercial papers. With that, the borrowers of debt funds can have various names such as creditors, debt securities investors, bondholders, and others.

Meanwhile, funding for startups has several benefits, including fulfilling various operational needs such as paying employees, renting a place, managing business activities cash flow company, as an emergency fund, maintenance of equipment or supplies to be useful as a fund to buy various kinds of inventory.

Types of Startup Funding

In general, the types of startup funding include the following:

Pre-Seeds

Pre-seeds is the initial funding stage. Usually, the source of funds comes from personal savings. The funding figure is still small, under US$ 0,25 million. Main source of funding pre seed usually from family or friends, but business angel and accelerator also included.

Seed

Seed is the next stage of startup funding if a startup wants to grow even bigger. Funding figures seed an average of US$ 1,7 million. Sources of funding seed can come from micro venture capital or capital in the form of money from various investors and through crowdfunding or fundraising practices. Usually, these funds are used for the recruitment process, product launches, market development, and other marketing needs.

Serie A

Series A funding starts when startups experience growth revenue significant. Series A funding averaged US$ 10,5 million. This funding is used to maintain growth revenue continues. Usually, this Series A funding comes from several investors at once.

Seri B

Series B funding is given to startups that have experienced an increase market share and scaling, which is able to survive among its competitors and has a quality team. The average funding is US$ 24 million. This series B funding is used to develop products and services to reach a wider market segment than before.

Series C

Series C funding was obtained by startups that have shown extraordinary expansion growth, and even have the potential to penetrate international market segmentation. The average series C funding reached US$ 50 million. Investors in this funding consist of advanced venture capitalists, private companies, to banks. For this reason, startups usually start involving financial institutions to invest.

IPO (Initial Public Offering)

Initial Public Offering or IPO is a type of peak funding stage of a startup. In this funding, noon startup go public even Go international ready to trade their shares in the market. It takes a long time about 5-10 years for a startup to reach this point.

2021 Startup Funding

In 2021, funding or capital injection by investors to startups will become more selective due to the Covid-19 pandemic. The Corona pandemic has changed the way the majority of investors choose which startups to invest in, including in Indonesia. Even though capital is available, some venture capitalists consider investment to be more selective in funding, one of which is investing.

In fact, investor interest in investing in startups remains high despite the Covid-19 pandemic. However, most investors are looking for a relatively resilient startup sector, whether in the current situation or not. In addition, investors are also starting to focus on investing in startups that have track record obviously to make a profit.

There are two categories of startups that are the choice of investors in a pandemic situation, namely startups with the label later stages and less risky.later stage are advanced funding rounds such as series B and above. Therefore, investors turn to startups later stages because it is more stable and is usually accepted by the market. Whereas less risky, because the startup has been tested or has minimal risk from negative things, such as losses and even failures.

The larger the startup funding, the higher the chances of achieving success and the ability to generate profits will also increase. But to get to that point, it takes a lot of effort and a lot of time. Therefore, it takes a startup founder who has great determination, a clear vision & mission, skill set qualified, and qualified and reliable team members.

Disclosure : This article was written by Muhamad Dika Wahyudi