Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
Startups go through a range of key funding stages before becoming established companies. The process is typically long and challenging. Yet opportunities also lie along the way for those with a keen investment eye. In this guide, we explain the main steps that a startup progresses through to acquire venture capital – from seed to exit. We hope this guide is useful to both founders and investors. To find out more about our investment opportunities, visit our portfolio page here. To enquire regarding our latest projects and funding, you can reach us via:
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#1 Seed stage
This is the earliest opportunity for a startup to try and receive funding for its growth plans. Like the analogy of planting a tree, the “seed” stage is a crucial step in a startup’s maturity and there is a high risk of failure (many businesses simply do not progress). Here, funding is often used more towards market research and product development. The target demographic may still be determined and the startup’s solutions are still in formation. Funding may also be necessary to help employ a strong team to carry the vision forwards. Sources of funding may come from founders, friends, family, incubators and more.
#2 Angel investment
Angel investors may start to show interest in a startup once there is a tangible product to start looking at. A clear target market has been identified by the business and there is a degree of track record in place for investors to start gauging performance. At this stage, startups look to build momentum by seeking funding to expand the team, marketing and development of products. Angel investors will consider different startup pitches and invest between £10,000 – £500,000 for a minority stake (usually between 10% and 25%). The angel investor can then bring industry expertise, contacts and mentorship to help the business grow.
#3 Series A funding
This is regarded as the first institutional funding round. It often arrives once a business is ready to scale further and expand into new markets. By this stage, a proven business model can be demonstrated and there is a steady revenue stream. The business will still be privately-held but now possibly with aspirations to go public in the future (due to its strong growth potential). Here, the investments can total tens of millions of pounds. Financing tends to come mainly from traditional venture capital firms, with total funding typically ranging from £2 million – £15 million. Firms seeking Series A funding may be valued at £24 million or more.
#4 Series B & beyond
This stage of venture capital financing is usually less risky for investors. By this stage, startups have reliable cash flows, a proven management team and a viable product. This is when the company is past the development stage and is looking to go to the “next level”. Yet this can be the most challenging round for founders. Given the larger investment on offer in this round, the founders need to prove strong achievements after the Series A round. On average, the total funding for Series B is $35 million USD. Investors are often prepared to pay a higher share price for investing and usually prefer convertible preferred stock vs. common stock.
Here, the startup has finally achieved liquidity for its investors. Perhaps a larger company has acquired the business or there has been a management buyout. Maybe the business has gone public with an IPO. Perhaps the initial investors can sell their shares to a secondary market before the company goes public. Regardless, this is the stage where investors can hopefully realise their returns and begin turning to other options.
Thoughts for investors
Individual investors who are interested in startups will, by and large, be restricted more to the initial stages of venture capital. It is possible to invest in Series B funding, for instance, through equity crowdfunding platforms. However, many early-stage investors want to have a significant stake in their startup investments. This leads them more towards the first two stages above. Yet these earlier stages also typically involve higher risk (as well as the potential for higher returns). An investor should ensure that their investment portfolio accurately reflects their risk tolerance, time horizon and financial goals. Remember, with startups, there is a good chance you will lose your entire investment. Due diligence, diversifying and engaging in loss-mitigation schemes (e.g. the Enterprise Investment Scheme) can help to reduce this risk, but it does not disappear.
Eight broad areas to consider before investing in a startup include the team, the market, the idea, the competition, the business model, the finances, the exit strategy and the risk/reward on offer. Examining these factors with other like-minded investors (e.g. in an angel investor network) can help you refine your due diligence process further, drawing upon others’ insights and experience to identify issues and opportunities which you may have missed on your own.
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group? Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827