Family offices ramp up investments in early-stage rounds amidst funding winter

Family offices ramp up investments in early-stage rounds amidst funding winter

Subject :Economy

Section: National Income

Context: Experts pointed out that besides seed, angel and pre-series A funding rounds, there is now also growing interest among family offices to back Series A to Series C rounds in recent times

What is a family office?

A family office is a dedicated entity or group of companies established to manage ultra-high-net-worth families’ substantial investments and financial affairs.

Ultra-high-net-worth individuals (UHNWIs) are individuals with net assets valued at $30 million or more.

Family offices provide comprehensive financial services to UHNW families, including investment management, wealth management, accounting, financial advisory, tax planning, legal compliance, and travel arrangements. Experts from various fields are hired to ensure expert management across these domains.

There are two types of family offices: single-family offices, which serve a single family, and multi-family offices, which cater to the financial needs of multiple families.

Seed funding

• Seed funding is an investment made by an individual for a business to grow. It is generally the earliest form of capital a startup will raise
• Often, seed funding comes from angel investors, friends and family members, and the original company founders.
• Seed funding is used to start the company itself, and consequently it is fairly high risk: the company has not yet proven itself within the market.
• The purpose of seed funding is intended to give a founding team enough capital to pursue a certain idea or market to prove if the concept works.
• The initial investment— seed funding—is followed by various rounds, known as Series A, B, and C.

Types of Seed Funding for Startups

• Crowdfunding-is the practice of funding a project or venture by raising money from a large number of people, typically via the internet.
• Corporate seed funds-A corporate seed fund is a big source for these company’s startups. These companies, including other big companies, use the fund as a great source for their profit.
• Incubators-Incubators help entrepreneurs solve some of the problems commonly associated with running a startup by providing workspace, seed funding, mentoring, and training.
• Accelerators-Private startup accelerators do provide funding and the money helps cover early-stage business expenses, as well as travel and living expenses for the three-month residency at the in-person startup accelerators.
  • Startup accelerators generally take between 5% and 10% of your equity in exchange for training and a relatively small amount of funding.
• Angel investors- an angel investor is an individual that is looking to diversify their investment portfolio and back intriguing startups. Angel investors help businesses with capital funds whenever the startups have issues in growth in the early stages.
• Personal Savings-In this type, the founders of the companies use their wealth and savings as the source for seed funding.
• Debt Funding-Usually, money provided by banks or any other financial as loans is considered to be debt funding.
• Convertible Securities-Depending upon the progress or growth of the company, the loans provided as seed round changed to equity form.
• Angel Funds or Angel Networks-Many a time, many investors are pooled together to invest money in the early stage of the financing round. The formation of investors is known as Angle networks.
• VC Funding-Based on the following parameters, venture capitalists provide funds.

Series A Funding

• Once a business has developed a track record (an established user base, consistent revenue figures, or some other key performance indicator), that company may opt for Series A funding in order to further optimize its user base and product offerings.
• In this round, it’s important to have a plan for developing a business model that will generate long-term profit.
• Series A rounds raise approximately $2 million to $15 million
• Investors are looking for companies with great ideas as well as a strong strategy for turning that idea into a successful, money-making business. The investors involved in the Series A round come from more traditional venture capital firms.
• It’s also common for investors to take part in a somewhat more political process. It’s common for a few venture capital firms to lead the pack. In fact, a single investor may serve as an “anchor.” Once a company has secured a first investor, it may find that it’s easier to attract additional investors as well.
• Angel investors also invest at this stage, but they tend to have much less influence in this funding round than they did in the seed funding stage.

Series B Funding

• Series B rounds are all about taking businesses to the next level, past the development stage.
• Investors help start-ups get there by expanding market reach. Companies that have gone through seed and Series A funding rounds have already developed substantial user bases and have proven to investors that they are prepared for success on a larger scale.
• It is used in bulking up on business development, sales, advertising, tech, support, and employees costs a firm a few pennies.
• The average estimated capital raised in a Series B round is $33 million
• Series B appears similar to Series A in terms of the processes and key players.
• The difference with Series B is the addition of a new wave of other venture capital firms that specialize in later-stage investing.

Series C Funding

• Businesses that make it to Series C funding sessions are already quite successful.
• These companies look for additional funding in order to help them develop new products, expand into new markets, or even to acquire other companies.
• In Series C rounds, investors inject capital into the meat of successful businesses, in an effort to receive more than double that amount back. Series C funding is focused on scaling the company, growing as quickly and as successfully as possible.
• Series C funding could be used to buy another company.
• In Series C, groups such as hedge funds, investment banks, private equity firms, and large secondary market groups accompany the type of investors mentioned above.
• Companies that do continue with Series D funding tend to either do so because they are in search of a final push before an IPO or, alternatively, because they have not yet been able to achieve the goals they set out to accomplish during Series C funding.