FUNDING GUIDE FOR STARTUP

Types of Funding
&
Their Role in
Business Lifecycle

Talk to the experts in understanding your funding requirements

The Dash Venture Labs report is sponsored by and

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 This guide aims to empower founders with
the various funding avenues available in
today’s changing business ecosystem.

The objective is to understand the stages of

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startup cycle and types of funding available,
including governments grants and similar
offerings from other financial institutions.

I. What is Startup Funding?

Funding refers to capital required to fund a business. Every business

will need funding in various forms but the type of funding will differ
Industrial & Corporation
based on the business cycle and maturity of the business. Hence, for a
CEO and/or a Founder, understanding the various types of funding and
its impact on the broader business and shareholding pattern is
important. This will ensure that the startup has adequate capital to
continue its growth trajectory.

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 II. Investments in Startups
Startups require capital to fund their
innovative ideas to establish/penetrate
into new or existing markets. However,
it is important for founders to
understand the various fund raising
avenues. They should also understand
the stages of the business cycle and
raise funds to support their venture.

Liquidity does not seem to be a problem for founders today, but they
should understand the importance of each round of funding and modern
structures designed around each capital raising activity. More importantly,
how these will impact their shareholding structure and future fund raising
activity.

Top 10 Countries by Number of Highest-valued Private Startups

Startups Globally (US$ billion)

USA 71,153 Bytedance 75

India 13,125 Didi Chuxing 56
UK 6,220 Stripe 36
Canada 3,303 Space X 33
Indonesia 2,347
Airbnb 18
Germany 2,295
Kuaishou 18
Austrialia 2,262
Paytm 16
France 1,567
Epic Games 15
Spain 1,407
DJI Innovation 15
Brazil 1,166
Grab 14

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III. Why do Startups Require Funding?

A startup might require funding for one, a few or all of the following purposes:

Product Prototype Raw Material

Team Hiring
Development Creation & Equipment

Legal & Consulting Licenses & Sales &

Services Certification Marketing

Office Space &

Expansion Acquisition
Administration

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IV. Stages of Funding

Pre-Seed Funding Seed Funding Series A Funding Series B, C, D. &

E Funding

It is the earliest It is considered as This type of funding This type of funding

stage and is often first official stage of is often achieved is usually used to
funded by funding. Seed after having the first grow an existing
supporters, friends funding is the initial proven track record business & hire new
and families stage of a growing of business employees
business success

There are multiple sources of funding available. But, the source of funding should
typically match the stages of operations of the startups.

Stage of Ideation Validation Easy Traction Scaling

Startup
Stage of Startups

Stage of Pre-Seed Series B, C, D

Seed Stage Series A Stage
Stages & E Stage
funding

Incubators,
Government
Source of Bootstrapping / Venture Capital,
Self-financing, Schemes/Grant, Venture Capital
funding Friends & Family Angel Investors, Banks/NBFC’s
Crowd-funding

Venture Capital

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 V. Stages of Startups

1. Ideation 2. Validation
(Identify the gap - Utilize your own (Create an MVP - Launch the MVP

Experience - Market Research - - Evaluate the results - Overhaul

Analyze the idea in various aspects) the product)

4. Scaling
3. Early Traction
(Broaden the horizon-
(Cash inflows - Focus on KPI's -
- Eye the market share, acquisition
Critical situation - Gain trust)
opportunities

- Marketing & brand image)

VI. Types of Funding

Types of Funding

Internal Sources External Sources

These are an important source of funding for
These are generally secured at early
any startup. The stage of securing such
stages of a startup. This includes
funding will vary across startups. These
his/her personal savings or borrow
include Government Funding, Incubators and
from friends, family and relatives to
Accelerators, Angel Investors, Private Equity,
fund the startup.
Venture Capitalists, Crowd Funding, and other
innovative funding avenues

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VI. Types of Funding
Bootstrapping
Family & Friends Entrepreneurs fund their
Here, entrepreneurs borrow personal savings to fund

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money from their spouse, their business
parents, family, or friends.
The money raised is repaid
Angel Investors
later as business profits
These are high net worth
increases
individuals (HNIs) who invest
in small businesses for equity.
Private Equity &
They usually expect high
Venture Capital
returns from their
Private Equity and Venture
investments.
Capitalist funds mostly
Crowd-funding
invest in well established
Businesses raise capital
businesses for a time frame
from a large number of
of 3-5 years
individuals through an online

Peer-to-Peer Lending platform. It is comparatively

These lending platforms faster and an easy process.

enable entrepreneurs to
seek finance from other Bank Loans & Govt. Grants
businesses Entrepreneurs can borrow

Industrial & Corporation funds from banks. The

government also provides
Incubators and Accelerators
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Accelerators provide various
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businesses in their startup Seed Funding
phase. Investment at early stages
of operations, so as to
IPO materialize the business
An IPO is the process where a from idea to reality
company offers corporate
shares to the public for the first
time

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VI. Types of Funding

01. Bootstrapping

There are limitations as the savings

Most entrepreneurs fund their
are not always enough to cover 100%
business using their own personal
of an entrepreneur’s expenses; thus
savings. It is the single most common
it’s often used in conjunction with
source of capital for entrepreneurs.
other funding sources.

02. Friends and Family

Borrowing money from their spouse, parents, family, or friends is also a very
1 common practice adopted by entrepreneurs. This money is also known as
‘patient money’.

This is the simplest mode of raising funds as there is no major compliances.

2 However, the biggest drawback is the limitation of funds available, which
might not be sufficient to suit many business models.

03. Angel Investors

Angel Investors are high-net worth individuals (HNIs) focused on financing small
business ventures in exchange for equity.

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VI. Types of Funding

Raising funds from Angel Investors is not an easy task, as the entrepreneur has to
pitch the idea and convince the investor about the opportunity as well as being
successful in the business venture.

Angel investors expect a high return on their investment and thus monitor or are
involved in the entire business and processes.

04. Private Equity & Venture Capital

Private Equity (PE) & Venture Capitalists They generally look for businesses which
(VC) funds are professionally managed are revenue generating, scalable and have
funds. a proven track record.

They have a hands-on

The typical time-frame for
approach, which means they
such investments is 3-5
will be part of the overall
years
business.

PE & VC generally invest in companies with potentially large and lucrative markets,
strong management/advisor team, and a business model they feel can be executed.

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VI. Types of Funding

05. Crowd-funding

This type of financing is raised through an online platform, where ones

1
needs to present to any interested individual group.

The process is faster and more effective, since funds are raised online
2
and a large number of people are able to contribute.

Although crowd-funding may not raise a lot of money, it can be seen as

3
validation of a business idea with the level of participation.

4 There are 4 major types of Crowd-funding:

Donation Crowd-funding Reward Crowd-funding

Here the investors mainly invest Investor is rewarded for financial

for charitable/social purpose support by providing the product/

and do not expect any return. service at discounted rate

Equity Crowd-funding Debt Crowd-funding

In this case, investors are given Here, investors expect returns in
ownership in the company in lieu the form of interest for the
of their investment investment made

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VI. Types of Funding

06. Business Incubator & Accelerator

Business Incubators & Accelerators are

Business Incubators and similar to Angel Investors; however, they
Accelerators focus on the high-tech are more knowledgeable and have
sectors. However, there are some expertise in various business verticals.
local economic development
incubators that focus on areas such Accelerators get involved at the growing
as job creation, revitalization, and stage of a business, whereas Business
hosting and sharing services. Incubators are involved at an early stage.

07. Government Grants

Governments have established agencies to support the startup

1
ecosystem by providing funds in the form of grants and subsidies to
startups.

2 Founders can apply for such financing through government programs

offered on their respective websites.

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VI. Types of Funding

08. Initial Public Offerings

Initial Public Offerings (IPOs) are typically the route adopted by companies in the
advanced stages of their business cycle.

Companies that prefer to raise significant amounts of money and are willing to
offload equity to the public should consider an IPO as a fund raising alternative.

It usually takes between 8 to 12 months for companies to go public due to

regulatory approvals and processes.

09. Banks

Bank loans remain a Entrepreneurs are eligible

Difficult and long
time-tested funding for a small business loan
processes with
option for entrepreneurs, if he/she has good credit
various approvals
although they can be history and can provide
required
difficult to secure. collateral.

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VII. Comparison of Various Funding Options
Investment
Type of Expected
Stage Fund Size Availability Time Ownership
funding Returns
frame
Bootstrapping Early Small Easy 1 year Low Entrepreneur
Small
Initial, Entrepreneur
Seed Capital to Medium 1 to 2 year Medium
Validation Investor
Medium
Angel
Investors, Medium
Initial, Entrepreneur
Business to Medium 1 to 3 year High
Validation Investor
Incubators & Large
Accelerators
Venture VC/PE hold
Traction,
Capital & Large Medium 3 to 5 years High substantial
Scaling
Private Equity stake
Schemes by Small
Initial,
Government to Medium -- -- Entrepreneur
Traction
Authorities Medium
Credit Entrepreneur
Initial, History/ Fixed (Collateral to
Banks Difficult 1 to 3 years
Traction Collateral Rate be provided
Based to bank)

VIII. Funding Based on Age of Company

Average age of a firm
Investors Stage
in years
Early Stage
1 Family & Friends
(Ideation/ Validation)

Early Stage
3 Angel/Seed/VC
(Ideation/ Validation)

Growth Stage
5 VC/Banks
(Early Traction/ Scaling)

Growth Stage
8 Public Market
(Early Traction/ Scaling)

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IX. Types of Investment Agreements

Convertible Notes

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 A Convertible Note is an instrument through which a company can raise finance.

 This debt instrument has an interest rate, a discount rate, valuation caps, a QFE (Qualified

Financing Event) that would require a significant raise, and maturity dates.

 The intention of this convertible note is that it converts to equity when the company does

an equity financing.

Simple Agreements for Future Equity (SAFE)

 It is an agreement whereby a startup raises funds from investors by providing them with

the right in future equity of the startup.

 Created by the Y Combinator SAFE, Simple Agreement for Future Equity is an easy way

for investors to get funding quickly.

 SAFEs do not have a maturity date; they do not accrue interest; they may or may not have

Industrial & Corporation

a valuation cap, and they typically do not have a discount rate. Due to these terms SAFEs

are described as the most company-friendly investment.

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Keep It Simple Security
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 The Keep It Simple Security (KISS) was introduced by 500 Startups as an alternative to

both Convertible Notes and the SAFE.

 This security may or may not have an interest rate or maturity date but will have a

valuation cap and discount rate, and has a QFE of US$ 1 million.

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IX. Types of Investment Agreements

Simple Agreements for Future Tokens

(SAFT)

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 It is an agreement whereby a security is issued for the eventual transfer of digital tokens

from crypto currency developers to investors.

 The Simple Agreement for Future Tokens (SAFT) is an unique convertible instrument

because it is not debt, and does not convert into equity.

 The contract determines the rate at which the purchaser of the note is entitled to receive

tokens. The tokens do not represent equity in the company.

 An investor under this agreement typically invests in a SAFT with the specific interest of

earning tokens.

Disclaimer:

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X. GCC Funding Activity

USD 1.73
billion
Total Funding for H1 2022 67.6%
YoY
182 Foreign investors
Deals 354 Total Number of Deals
participation

 The year 2021 saw a record USD 2.87 billion funds raised in MENA-based startups,
up 339% Y-o-Y, while the number of deals went up by 76% Y-o-Y.
 UAE-based startups raised USD 1.46 billion (196 deals) which accounted for nearly
51% of the total funds raised in the MENA region.
 The Top 5 deals accounted for almost a third of the total funding (31%) in 2020.
 After UAE, Saudi Arabia ranked second in terms of funds raised (USD 647 million),
followed by Egypt (USD 445 million)
 In terms value of investment by sector, Foodtech raised USD 596 million, followed
by Fintech (USD 519 million) and E-commerce (USD 480 million).
 Total investment in the GCC reached USD 2.21 billion with 386 deals in 2021.

Top Investors in MENA Markets - 2021

Flat6Labs 500 Global OQAL Wamda Global Ventures

59 Deals 35 Deals 28 Deals 23 Deals 17 Deals
Egypt USA KSA UAE UAE

Impact46 Wa’ed Vision Ventures VentureSouq

17 Deals 16 Deals 16 Deals 15 Deals
KSA KSA KSA UAE

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 Investments raised by Startups in MENA

2021 H1 2022
US $2.87bn raised from US $1.73bn raised from
639 deals 354 deals

Number of Deals by Funding Stage in MENA

250
2021 H1 2022
199
200

150
106 108
93
100 84
56 55
50 40
31
18 11 16 16 12 12 19 26 26
10 3 3 7 2 1 3 3
1 0
0
Incubator

Angel

Pre-Seed

Seed

Pre-Series A

Series A

Pre-Series B

Series B

Pre-Series C

Series C

Crowdfunding

Grant

Undisclosed

Others

Top 5 biggest Rounds in the GCC (2021- H1 22)

US $415mn US$ 170mn US$ 125mn US $124mn US $110mn

Series C Series C Series B Growth Series A

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 Thank You

Ascent Partners, Suite 1107, The Onyx Tower 2, The Greens, Dubai, UAE.
Website: ascentpartners.ae Phone: +971 52 244 8468,
E-mail: [email protected]

SDCEE Campus 3rd Floor, Dtec, A5 Building, Dubai Digital Park

Website: www.sdcee.ae Phone: +971 50 553 0451; E-mail: [email protected]

Disclaimer:

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