It’s really hard and almost laughable to say that as a startup founder, you have everything figured out. Setting up a business is a journey and a learning curve that first-time founders will come to realise takes a lot of time and effort. One aspect of this is finding the right kind of funding to fuel your startup at the different stages you find yourself at as a founder.

In this piece, we shall explore the different stages of a startup lifecycle as well as explore all the options available for getting funds for your startup.

According to Silicon Valley Bank, there are three stages for every startup, which include the early-stage, growth-stage, and late-stage.

These stages can be further subdivided into:

Early stage: pre-seed, seed stage

Growth stage: expansion phase

Late stage: exit phase.

Early-Stage

This is regarded as the stage for analysis, survey, and critical decision-making. Just like any project, this stage is crucial for determining the real problem in the niche market in which the startup wants to act. This stage also requires funding (pre-seed, seed stage funding), and that can come in various forms we shall explore much later

If you’re a founder at this stage, consider asking yourself the following questions:

• Am I really providing a quality solution to the problems of this industry?
• How will my solution affect other pain points in the market?
• Is my solution similar to an existing one in the market?
• Will I need additional funding to scale my solution?

Growth-Stage

If you get to this stage, it simply means that there is a strong market demand for your startup’s product, services, or solutions. As a founder, you will see an increase in revenue from new customers, recurring customers, and billing.

Also, profitability here is paramount. In this stage, the startup begins to experience growth internally with its team as recruitment begins. This stage also requires critical funding from a list of options that are at the startup’s disposal. This is also the stage with the highest failure rate. 

If you’re a founder at this stage, consider asking yourself the following questions:

• What’s the next thing I have to do to ensure continuity?
• What is the best type of funding for my startup?
• How do I ensure maximum customer satisfaction?

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 Late-stage

This stage is always accompanied by an exit strategy. However, there are many startups whose aim is to become high-value, long-term companies. So, this phase is not mandatory and does not always play out among startups.

Now that we have established the various stages a startup can be at, we will now explore the different forms of funding for your startup.

Investments are strong drivers for every startup, and before now, investments in startups used to be less complicated than they are now. Before now, as a founder, you simply raised money from venture capitalists who wanted to see a huge return on their investment. 

Now, investments in startups come with a variety of reasons, and as a founder, it is important to understand the different incentives that come with these investments and by these investors.

Here are Different Kind of Investors and their Incentives

Venture Capital

This is often an ‘only for profit’ kind of investment model where the venture capital firm invests in startups with the primary working expectation to achieve returns for the funds they’ve raised from a set of Limited Partners. 

These Limited Partners then get paid by earning a percentage of the funds that they’ve raised for the VC to invest in your startup. VC firms typically expand their funding based on the performance of earlier investments.

There are a number of active VC firms that also play a crucial role in the startup space in Africa. African-based VC firms are also pulling their weight in the investment space in Africa. According to a 2022 report by AVCA, Africa-based VC investors comprised 25% of the total investment directed towards African startups in 2021.

Venture capital investment can also come at different company stages, for example, early-stage investments, seed-stage investments, etc.

Here are the top active VC firms in Africa.

Angel Investors & Syndicate

This is a solo kind of investment, usually from a wealthy individual. This individual invests in startups out of his or her own pocket. Oftentimes, they are founders who have made money from their own startups. Angel investors can also be from an entirely different industry, for example, a wealthy rap artist, a wealthy movie star, or even someone who has inherited money.

Angels often feature in a collection from organised corporate entities known as syndicates. These existing corporate entities can also be regarded as the "Angel Network," connecting startups to angel investors for their different funding needs.

Here are a few examples of angel networks in Africa: Rising Tide Africa, Angel Investment Network, ABAN Network, AngelList, The Cairo Angels, ViKtoria Ventures, and Carthage Business Angels.

Angel investors typically invest for a number of reasons, one of which is, of course, to make a profit. Angel investors can also make investments for a number of social and political reasons, but the truth of the matter is that these angels have a wide spectrum for their investment sizes, so you can expect funding for early-stage or growth-stage startups.

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Accelerator & Incubators

This can be described as a subset of VCs, but with accelerator-type investments, startups get funding directly from professional investors, often in related industries, who raise funds from third parties to invest in the startups. 

Apart from funding, accelerator programmes and companies can also offer incubator programmes for startups, which exist as an industry guide for founders and their startups.

Some examples include: Antler (Kenya), Co-Creation Hub (Nigeria), EFG EV Fintech (Egypt), Outbox Hub (Uganda), Startupbootcamp Cape Town (South Africa), Tony from Elumelu Foundation (Nigeria), etc.

Crowdfunder 

This is an unorganised form of raising funds from members of the public who genuinely just want to see a project come to life or be sustained. It can be done on the internet or in any public space. Investors who go this route are not expecting any financial return but do require regular updates on what’s going on with the project.

Startups that want to raise money this way often hire a portfolio manager or a crowdfunder to see through the project.

Government Funding

Governments often provide funding to startups in the form of grants, and this is done for a number of reasons, one of which is to promote productivity, increase job growth, and provide good optics for the government. 

In some countries, there are dedicated venture arms of the government that work like VC firms for the purpose of identifying startups. 

Startup Investment Phases

Early stage funding - This phase is the period before your first Series A funding round. Funding in this stage can be termed as pre-seed. They all refer to an often long and difficult phase of going beyond the idea to gaining traction and growth.  

Mid stage funding - This is the period between your early days and your growth days. Funding in this phase is often regarded as Seed Funding and they often come from angel investors with reasonable risk appetite.

Growth Stage Funding - This period is regarded as the Series funding.  Funding in this phase enables the founder and startup to build out their team and infrastructure that will support your growth in their operations. This stage comes in different phases including Series A, B, and C.

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Mezzanine/Debt funding - This is when a startup secures funding in the form of debt from financial institutions with an option to convert the debt into shares in case the company defaults in repayment. Startups who get funding this way are usually well-established startups and can secure funding based on cash flow as well as against some of its assets as collateral.

Initial public offering (IPO) - This is the stage at which the startup goes public, either as a requirement by the Security Exchange Commission (SEC) or having met a set threshold. The company will typically get funds from the public in exchange for shares. When a startup reaches this point, it is often no longer considered a startup because it has given the government important information about its security. It is now a publicly limited company (PLC).

In conclusion, there are a wide range of things you will come to learn as a startup founder looking to raise funds, but the one thing that is satisfactory enough is that there are a wide range of options and opportunities you can leverage on for this process.