The importance of alternative financing in the 6 phases of a startup

Crowdlending or crowdfactoring can open up alternative financing channels of great value in the different phases of a startup

Startups are playing an increasingly important role in the productive fabric and society. For example, the approval a few months ago of the Startup Law, a regulation that seeks to encourage the startup of innovative business projects and facilitate investment.

Just as companies have different financing needs throughout their life cycle, it is also clear that these projects must be able to obtain liquidity to move from one phase to the next and eventually consolidate themselves.

From the moment the intention to plant a seed arises until it becomes a solid and fruitful tree, many things happen. But financing needs are a constant throughout the process.

In this article, we will explore the role that various forms of alternative online financing, such as crowdfactoring or crowdlending, can play in the financing of all phases of a startup, from the initial idea until the company grows enough to stop being considered a startup or be acquired or absorbed by other owners. These financing channels complement the role played by traditional banking institutions, venture capital investment funds and business angels.

Pre-Seed. Financial resources to germinate an idea

The phases of a startup establish an obvious simile with the growth of a plant. However, unlike in the natural world, in the business world, a project can't be born by spontaneous generation. One or more people always have an idea and strive to take it forward.

The pre-seed is the primordial phase of a startup. The initial idea must materialize in a complete business plan, a team that can carry it out and obtain initial resources to get it off the ground.

The first phase of a startup already shows the need to obtain financing, even before the seed is planted in the ground.

Usually, this funding is provided by the founders and the so-called 3Fs (Family, Friends and Fools) investors. However, alternative online financing can already play a role in this phase 0 of a startup.

For example, you can apply for a loan through a crowdlending platform. Or obtain liquidity in exchange for shares in a crowdequity marketplace. As well as obtaining funding through crowdfunding.

Seed. Liquidity to launch a minimum viable product

In the second phase of a startup, the goal is to develop what is commonly known as MVP. And no, we are talking about something other than the best player in a game but a minimum viable product. That is the product's first version that the startup wants to develop and commercialize.

In this phase, we move from theory to practice. Since the startup must already be able to materialize the original ideas, and for this, of course, it needs tools and personnel… Or, to put it another way, it needs economic resources.

The product or service developed by the startup is tested by real customers who must validate its operation and contribute to correcting any errors or weaknesses detected during its use or enjoyment. If the entrepreneurial project fails to validate its business idea, it will not be able to move on to the next phases of a startup. On the other hand, if by testing the minimum viable product, the validation of the initial customers is achieved, we have a seed that enjoys the optimal conditions to grow.

Online alternative financing platforms can be a way to obtain liquidity and other forms of offline alternative financing, such as Venture Capital or banks.

When a company is just starting (early phases of a startup), it needs to open as many doors as possible. Financial planning may not be as sexy as product or business model development, but it is crucial to the startup's success.

Early Stage. Breaking into a competitive market

The market is becoming more global and more contested. Breaking through in such a scenario takes work. That is why the Early Stage is one of the most complex phases of a startup.

The minimum viable product has shown that the initial idea can be transformed into a successful business project. Still, it is time to attract more customers, optimize the product or service being developed, and focus on innovation.

All this implies making investments and hiring more staff since the structure of the project must be broader to meet the needs of all customers and be able to seduce new consumers.

It should be noted that during this phase, the company can already collect data and metrics that allow it to make strategic decisions to strengthen the project.

In this phase, startups can obtain financing through the traditional financial system and resort to online alternative financing platforms such as Inversa Invoice Market. Crowdfactoring is an interesting way of financing since the projects already have customers to whom they invoice their goods or services. Therefore, they can finance the invoices they have yet to receive. In this way, they obtain liquidity to meet expenses and make investments of great value for the startup.

Growth Stage. Growing with solid roots

The product or service is on the market, and the company has customers. Now what? This one stands out among the different phases of a startup because companies need to focus on increasing their customers and profits.

In previous startup phases, maximizing profits did not play a central role in the strategy. Now it does.

Therefore, the business strategy must be optimized, and cash flow must be controlled. Therefore, planning is essential, so companies in this growth phase must have liquidity. Online alternative financing can help them in this task.

Through crowdfactoring, companies can obtain liquidity in the short term, preventing their cash flow from becoming unstable.

Stability is essential for solid growth in terms of financing and all areas of an innovative business.

Growth also involves increasing the workforce and investing in space, software, hardware, and machinery… To achieve this, it is crucial to have financing and to prevent investments from affecting the balance sheet.

Scale-up. Putting together a strategy to go further

The evolution of the previous phases of a startup already allowed us to foresee that we would reach the peak: expansion. The project has been consolidated, reaching a strong position in its market. Have we reached the end of the journey through the phases of a startup? Not at all. Now the company is ready to expand into other markets.

The company can open up new business niches and attract customers in other markets through expansion. To do this, it is essential to have financing. Even if the company generates profits and has its own resources, external financing is necessary to undertake an ambitious strategy that does not affect cash flow or the stability of the accounts.

Although, at this stage, the startup has easier access to traditional financial products, alternative online financing is still very useful to complement these channels and build a solid financial strategy.

In addition, thanks to crowdfactoring platforms such as Inversa, it is possible to finance the invoices of foreign clients based in key countries such as France, the United Kingdom or China. In this way, alternative financing becomes an ally in the export of goods and services.

Exit or consolidation of the company. The last phase of a startup

Surely you have heard of the Exit in a startup. This phase does not necessarily occur since the founders do not have to sell their startup but can choose to remain at the helm of a company with the vocation to survive over time.

If the founders opt for Exit, they would not have financing needs but the companies or investors that acquire the startup. It is common for larger companies to acquire a startup and integrate it into their business structure.

If the Exit does not occur, we can argue that the phases of a startup also come to an end. Why? The company is already consolidated and is no longer a startup. It is already a company with a solid position in one or more markets, a solid foundation and a business model that generates profits, employment and wealth.

The fact that a company has completed all the phases of a startup does not imply that it no longer needs to obtain financing and can meet all its expenses and undertake multiple investments with its funds alone.

Financing needs to extend throughout the entire life cycle of a company.

From people investing in people to startups helping startups

At Inversa Invoice Market, we have a mantra at the heart of the project: we are an investment platform that facilitates the possibility for people to invest in people. In other words, savers can make the most of their money while enabling companies in the real economy to obtain liquidity.

Regarding the phases of a startup and its different financing needs, Inversa is a startup that helps other innovative companies by opening up a new way to obtain liquidity, facilitating the possibility for a plurality of investors to finance their invoices.

All entrepreneurs know that having a good idea, having the talent to develop it and investing a lot of work in carrying it out is not enough to succeed. Funding is essential for a startup to be born, grow and consolidate.

Beyond Venture Capital, Business Angels and traditional banking institutions, other online alternative financing channels can be useful when planning finances and have mechanisms to obtain liquidity quickly and agilely.

Inversa is a FinTech that facilitates the meeting between startups that need funding and thousands of investors who want to bet on innovative projects. This has made us a startup that helps other startups to achieve their goals.