By Dr. Nabil Shalaby
My friend Malik exclaimed: I have an idea! Will you invest in it with me? I answered him: No, I do not invest in ideas; At the stage of the project idea, you will have to rely on your personal savings, or resort to self-financing, bootstrapping, obtaining a loan, or investments from friends and family. As for the existing project, you can knock on various financing doors.
My friend looked at me in amazement! He asked for more clarification, so I further elaborated, and found it an opportunity to shed light on the “Startup Financing” topic that interests every entrepreneur.
There is the pre-seed stage, in which you start from an innovative idea to building a Minimum Viable Product (MVP), which, according to Eric Ries, is “that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.” All the support you get in this stage, is to help you turn your idea into a reality, or a product that can be tried and tested.
This is followed by the seed stage from which it starts; To build a more mature product, and prove a match between your product characteristics and market needs, or the so-called Product-Market Fit; As it requires building a professional team of non-founders, without expecting large investments at this stage; Because the stakes are high, and the startup is in the most uncertain stages; The product or service provided has not been adequately tested yet.
Angel Investors funding
One of the prominent ways to fund startups is Angel Investor funding. Angel investor is a person who has a lot of money, which he seeks to invest in start-up companies in their early stages, in exchange for shares in their ownership; This is what global companies such as Google, Alibaba, and Yahoo have relied on.
An angel investor is often a CEO, or a retired entrepreneur, who wants to use his experience and network of relationships for a financial return by investing in a startup company.
Angel investors organize themselves into networks, each consisting of 10 to 150 angel investors; With the aim of collecting their money together to make major investments, and to provide support and advice to various entrepreneurial projects.
Venture Capital Financing
There is the financing of Venture Capitalists, which depends on adventure and boldness, which are the basis of this financing; It targets high-risk entrepreneurial projects. The risk here sometimes comes from the attempt of startups to present an idea to the market in an unprecedented sense; Where the VC is an individual, or a specialized company willing to invest millions of dollars to support a promising startup company.
Venture capital or venture capital investors are characterized by being specialized professionals who are fully aware of the project details and its high risks, and see it as a good investment opportunity despite its high risks.
There is also what is known as crowdfunding, which is handled by a large group of individuals on online crowdfunding platforms; Platforms usually hold funds until project objectives are achieved.
Private Equity Financing
Other types of financing include private equity financing; Where the investor finances the startup in exchange for owning shares in the company, helping it with his expertise and marketing it, in exchange for the entrepreneur giving up part of the company’s ownership.
Some government institutions offer non-refundable grants to support startups, after submitting a business plan.
Credit Guarantees Companies
As for the credit guarantee companies, they are the intermediary between the bank and clients wishing to establish projects. They assist clients in preparing the documents required by the lending bank, acting as a financial advisor to the client, and paying the value of the guarantee on his behalf in the event of his failure.
All of these financing methods have been listed and their entities are listed in 57 countries on the Global Entrepreneurship Ecosystem Platform (GEEP).
My friend smiled, and asked me about the financing rounds A, B, C and D Series Fund, in terms of their characteristics, their financing numbers, and the stages of the startup in them. He concluded with another inquiry, about the criteria venture capital companies use to choose the startups in which they invest, I answered him; But I will make it in detail in my next article here, God willing.