Startup funding Guide: What you need to know

Startup funding Guide: What you need to know

Are you having a brilliant idea for your startup, and have a hard time funding it? You need to learn your best options on how to fund a startup. Here is a quick guide on how to get your started and fund a startup.

The unfortunate reality for most entrepreneurs with an idea is that money is often a prerequisite. Despite the wide array of funding sources, there are three general categories: Bootstrapping, Debt, and Equity. In recent years, crowdfunding on platforms such as Fundable has become a powerful source of funding for both bootstrapping and equity techniques.

Debt as a Form of Startup Funding

Simply put, debt is capital you have to pay back. Generally, debt is easier to come by in terms of funding your startup, as there are far more lenders in the world than equity investors.

Because lenders are more indiscriminate in the industries they lend in, a traditional loan is one of the most frequent and viable roads to funding. 

Entrepreneurs often look to avoid going into debt. However, these options are not as scary and complicated as they sound. There is often a very good route for startup funding. Startup Funding is a critical component of your business venture and is a big issue to tackle.

Offering Equity in Exchange for Startup Funding

Equity refers to capital a startup founder receives in exchange for stock in his or her company. This is what investors will typically deal with. Clearly, to offer equity to an investor, you need to have some perceived value or proof of concept to instill confidence.

Equity investments are most valuable in businesses that involve high risk and normally a longer period for return on investment.

Bootstrapping

It would be ideal for startup founders to be able to begin their venture with a lump of investor capital. Unfortunately for most startup founders, that isn’t realistic. For centuries, the majority of entrepreneurs have funding for startups with their own capital through bootstrapping.

Bootstrapping often entails using personal savings, credit cards, promising stock for sweat equity, or borrowing from friends and family. Borrowing from friends and family can be difficult to ask for, and even more difficult to orchestrate. However, many entrepreneurs have turned to crowdfund on sites like Fundable or Kickstarter to streamline the friends and family round. There are many other crowdfunding sites to raise money for your idea.

Funding for startups is available in all sorts of forms, and an entrepreneur would be wise to consider and evaluate all forms of capital available for each stage of the business. Startup funding can have different forms of capital that will make more sense and be available for that stage. Moving from simple credit card debt and personal savings to more complicated sources like angel investors and commercial loans. 

Venture Capital Investment Deals to follow in 2021

Venture Capital Investment Deals to follow in 2021

Despite the pandemic, venture capital investment pushed plenty of money into startups in 2020. Moving forward, the experts predict global venture capital investment market to exhibit strong growth during the period 2020-2025. Venture capital investment is gaining popularity as it provides above-average returns to investors and helps in encouraging progress. 

At present, the market is experiencing growth on account of the growing number of startups, in confluence with the increasing investments from mutual funds and banking institutions in venture capital. Apart from this, the expanding investment activities in diverse industry verticals, such as healthcare, biotechnology, agriculture, and media and entertainment, are also strengthening market growth. Furthermore, venture capitalists are utilizing algorithms and machine learning (MI) for identifying startups with a higher growth potential to make better investment decisions. However, the market growth is under impact by the global spread of the coronavirus disease (COVID-19) and consequent lockdowns imposed by governments of many countries.

Therefore, various organizations and their operational activities have come to a sudden standstill. Because of this, venture capitalists are modifying their plans to survive the rapidly changing market conditions.

While investment slowed down dramatically in the spring, VCs invested $36.5 billion in the third quarter of 2020, a seven-quarter high. Global VC funding rises over 40% in Q3’20 compared to Q2’20, with Asia seeing the largest gains. Funding to startups in Asia increases by 74% while jumping 29% in Europe and North America in Q3’20 versus Q2’20.

Source: Cbinsights

Venture Capital Deals

Here are venture capital deals that shed some light on what 2021 might look like-for entrepreneurs, their customers, and their backers. Cityblock Health has a new approach to health care for underserved urban populations. Cityblock’s $160 million Series C funding round and a valuation of over $1 billion. As Dr. Toyin Ajayi, Cityblock Health co-founder said, Cityblock’s goal is better healthcare outcome for marginalized communities that can also be aligned with driving down healthcare costs and driving waste out of the system.

Much of the technology meant to make us more informed and productive seems to have the opposite effect. A recent report found that the average employee regularly uses eight software apps while doing their job. That helps explain the appeal of Notion, one of the leaders of a pack of productivity software startups. Notion brings multiple apps and software together in one place, in an attempt to make it easier for employees to find the information they need when they need it. The $50 million round valued Notion founded in 2013, at $2 billion.

Another venture capital investment attracted by Textio raised $12 million to help take bias out of business communications. That problem is likely to persist well into the next decade. Most people have a hard time to learn what language will attract a diverse pool of candidates and what language will repel them. That is where Textio comes in: helping employers write job postings and other documents that are inclusive.

The largest Mergers and Acquisitions in 2020

The largest Mergers and Acquisitions in 2020

2020 brought some hardels to deal-making. Early on, the pandemic made the notion of corporate takeovers seem, for a few months, like something from a lost era. But then came a burst of activity like few had ever seen before, even as the health crisis raged. In 2020, SPACs become highly important in mergers and acquisitions.

Nearly 45,000 deals worth $3.4 trillion had been announced this year, down 8 percent by number and 7 percent by value from the same point a year ago, according to Refinitiv.

Intuit – Credit Karma

Fintech giant, Intuit (INTU) announced that it would be acquiring Credit Karma for approximately $7.1 billion, making it Intuit’s largest acquisition ever. Intuit is a global financial platform company with TurboTax, QuickBooks, and Mint as its flagship products.

Grubhub – Just Eat Takeaway

In June, Just Eat Takeaway entered into an agreement to acquire Grubhub (GRUB) for $7.3 billion. The move marks Just Eat Takeaway’s foray into online food delivery in the U.S. with the two companies together creating the world’s largest online food delivery company outside of China. Grubhub is a leading online and mobile food-ordering and delivery marketplace in the U.S., with nearly 300,000 restaurants across 4,000 U.S. cities.

Uber – Postmates

In July, Uber (UBER) entered into $2.65 billion deal to acquire Postmates. This comes after Uber’s $6.5 billion bid for Grubhub fell through. Postmates is complementary to Uber Eats, with differentiated geographic focus areas and customer demographics.

Visa – Plaid

Visa (V) announced the decision of Plaid’s acquisition for $5.3 billion in January 2020. Connectivity between financial institutions and developers has become increasingly important with the growing demand to facilitate consumers’ ability to use fintech applications. 

Morgan Stanley – E*TRADE

The acquisition announcement of E*TRADE (ETFC) for approximately $13 billion by Morgan Stanley (MS) in February 2020 has been one of the biggest acquisitions of 2020. The decision is expected to boost Morgan Stanley’s position across all channels and segments in the wealth management business. 

Overall activity in the M&A space remained subdued amid the pandemic. During 1H 2020, 24,698 deals were announced globally, marking a 15.1% decline from 1H 2019. The drop is sharper in terms of deal value, which witnessed a fall by 44.7% from $1.85 trillion in 1H 2019 to $1.02 trillion in 1H 2020, according to a report by GlobalData.

Q3’20 Venture Capital Investment

Q3’20 Venture Capital Investment

As countries re-opened their economies, in Q3’20 both VC investors and companies have adapted to new ways of doing business.  In Europe, sectors have seen high potential despite or because of COVID-19 attracted significant investors’ attention, including transportation and logistics, health and biotech, and fintech. Most VCs have adapted to new, remote ways of doing business, and capital invested continued at a strong pace in the third quarter.

A new report from Pitchbook highlighted the venture capital investment situation in Q’3 20. The $37.8 billion invested in Q3 was relatively on par with Q3 2019, thanks largely to late-stage investments. The startup ecosystem appears to be responding admirably to the grave challenges currently facing the US. Startups and entrepreneurs look to be moving aggressively to address the major challenges of our time: climate change, healthcare, COVID-19, and more.

There is a rise in sustainable startups in CEE – changing the world towards sustainability. The CEE region continues to evolve and compete to be at the forefront of the European tech startup scene. Startups are crucial elements of fostering knowledge-intensive and sustainable growth. While some sectors have struggled during the pandemic, the adoption of many new startup technologies accelerated and underpinned investment in those spaces

Among the top sustainable companies in Europe, first on the list is Denmark’s Ørsted A/S. The company claims the top of the leaderboard in 2020. Within a decade, the company has completely transformed its business model—shifting away from the Danish Oil and Natural Gas (DONG) company into a pure-play renewable energy company.

Moving forward, we may see significant long-term changes in consumer and business behaviour that prove fundamental to the creation of new, large firms that emerge from this turbulent time.

However, not all trends in the ecosystem have been positive. The number of seed and early-stage VC investments has rapidly declined, and we have seen an even steeper reduction in the number of first financings for startups, which reached a 10-year low in Q3. Ecosystem concerns also include worries over a retraction on gender-diversity progress given decreased investment into female-founded startups in Q3, and in 2020 overall. We’ve seen the number of women in venture capital firms with two or more female partners doubled last year to 14%.

Source: Chart from @Sifted

Trends to watch for in Europe

As Europe continues to adjust to a new reality, VC investors in Europe are expected to remain highly focused on areas such as health and biotech, fintech, and the future of work. In fact, 2020 is the largest funding year ever for digital health. The $4.0B invested in US-based digital health startups through Q3 brings the year’s running total to $9.4B. Notably, 19 of the 25 largest early-stage VC deals in Q3 were in healthcare.

Pharma and biotech startups also accounted for four out of the five largest exits in the third quarter of the year, representing a combined value of €5.3bn. That’s on track to beat the annual exit values from software startups for the second consecutive year, according to the report from Pitchbook.

GDP levels in the euro area and EU

The COVID-19 pandemic also had a strong impact on GDP levels. Based on seasonally adjusted figures, GDP
volumes were significantly lower than the highest levels of the fourth quarter of 2019, according to data from the EU Commission.

The number of employed persons decreased by 2.9% in the euro area and by 2.7% in the EU in the second
a quarter of 2020, compared with the previous quarter.

These were the sharpest declines observed since the time series started in 1995. In the first quarter of 2020, employment had decreased by 0.3% in the euro area and by 0.2% in the EU.

 

Venture Capital Investment Q3

Global venture capital investment continued to be very strong in Q3’20, opposing concerns of a potential drop-off in investment due to the challenges associated with getting deals completed during a pandemic. While the number of VC deals dropped for a sixth straight quarter, the level of investment remained high, as VC investors continued to focus on late-stage companies. Three $1 billion+ mega-deals helped to propel the global investment total in Q3’20, including raises by WM Motor in China, SpaceX in the US, and Flipkart in India. The US accounted for the largest amount of VC investment globally during Q3’20 at $37.8 billion raised, although both Asia and Europe also saw increases compared to the previous quarter.

Following a record high in Q2’20, Europe continued to see robust VC investment this quarter. Fintech and health tech were among the hottest areas of investment this quarter. Venture capital investment is expected to remain steady in Q4’20, although the US presidential election and the possibility of a hard Brexit on December 31, 2020, could cause some investor concern. COVID-19 is expected to remain a key driver of both investor caution and investment heading into Q4’20. Therefore, it is safe to say, that investors will keep their focus on health care and fintech as key areas of investment,  in addition to B2B solutions and edtech.

Startup Unicorns in Europe in 2020

Startup Unicorns in Europe in 2020

Startup ecosystems are partly defined by how many companies have hit the billion-dollar valuation mark. In Europe, the unicorn count is steadily growing. In 2020 so far, at least 10 new unicorns have been ‘born’. There are plenty more fast-growing startups likely to join the list soon.

Unicorn aggregate valuation holds steady at $600B+ for the year 2019 and following more in 2020. The unicorn phenomenon contributed significantly to the ongoing globalization of VC.

There is a confluence between nontraditional firms and foreign investors, both of which fueled unicorn financing rates for the past year. That said, VC is globalizing as nontraditional and foreign players seek exposure to fast-growing tech companies in order to diversify their own portfolios.

We listed below unicorns founded in Europe, by following the list from Sifted and CB Insights.

GLOBAL SWITCH

Global Switch, the most valuable Europe-based unicorn, operates data centers in Europe and Asia. In July 2018, a consortium of investors bought a nearly 25% stake in the company for almost $2.8B. The company said that the investment would help fund its expansion plans ahead of an anticipated IPO.

HOPIN

The online events platform gained its spot on Europe’s unicorn list just eight months after launch. Towards the end of 2020, it is also Europe’s fastest-growing company. The question is, will the events return to physical form quickly in 2021? If so, how will Hopin past this obstacle?

KLARNA

Klarna provides online payment services. The company has made a handful of acquisitions in recent years, including its purchase of cart and checkout browser extension Shop.co in 2018 and its $75M acquisition of Germany-based payments company Billpay in 2017. It is the most well-funded tech startup in Sweden.

CAZOO 

Online used car retailer Cazoo is proof of the power of the serial entrepreneur. It was founded by Alex Chesterman, the entrepreneur behind successful start-ups Lovefilm and Zoopla. It claims to have become “the country’s leading online car retailer” since its launch. It has raised an extra £25m in funding from venture capital firms Draper Esprit, General Catalyst and DMG Ventures, bringing the total funding raised to more than £200m.

AUTO1 GROUP 

Founded in 2012, this Berlin-based company runs an online used car marketplace in over 20 countries. In 2018, it launched a fintech subsidiary, Auto1 Fintech, with Deutsche Bank and Allianz.

KARMA KITCHEN

Karma Kitchen, the London-based kitchen space startup, has raised £252m in a Series A funding round to open dozens of new sites across Europe.

OTTO BOCK HEALTHCARE

Medical technology company Otto Bock is a prosthetics maker. Swedish buyout group EQT Partners bought a 20% stake in the company in June 2017.

NORTHVOLT

When green energy startup Northvolt raised $1bn in 2019, it came as quite a surprise. It hit the headlines again in 2020 when Spotify founder Daniel Ek announced that he was participating in a new $600m funding round into Northvolt.

N26

N26 is a mobile banking platform. The startup offers account holders benefits like no minimum account balances, no annual maintenance fees, accelerated paycheck direct deposits, and a built-in personal finance tool.

REVOLUT

Revolut is almost the fastest-growing digital banking app in Europe. Having begun as a travel currency-exchange card, the company has since expanded aggressively into a full range of services, including cryptocurrency and stockbroking services. You may be wondering what is the difference between the two competitors? N26 is available in both the web and mobile app versions, while Revolut is only in the mobile app. Revolut has features that are not available in N26 like access to cryptocurrencies. N26 and Revolut both have a premium/paid plans that offer travel insurance features like overseas travel, luggage, and trip insurances.

With its recent funding, N26 intends to double down on its most promising markets (EU, US, Brazil) while Revolut wants to double down on its core features, down to providing full bank accounts in Europe in the future, replicating the many services currently available in the UK. Revolut also intends to launch in the US and Japan.

MONZO

Monzo’s valuation at £1.25bn. reached unicorn potential.  The startup is best known for removing the hassle from personal finances, as well as progressive features like gambling-blocks.

KAHOOT

Norway’s Kahoot! has become an edtech force this year in particular. Teachers have been using the platform to interact with their students remotely. Investors include SoftBank, Northzone, Creandum, and Microsoft Ventures.

VOODOO

Voodoo is ‘hyper-casual’ games have been downloaded over 2bn times, it has raised money from Goldman Sachs and Tencent and is expanding into Asia.

Infobip 

Infobip, a company from Croatia provides the messaging platform for some 750 banks and works with some 650 mobile operators around the world. If you’ve ever received a message from your bank, or from Facebook or Uber, you’ve used Infobip. Infobip is Croatian first unicorn with a $1 billion valuation.

If Infobip does IPO in three years’ time, these learn-on-the-job employees will be in for a decent payday. Some 10% of Infobip shares are owned by the staff. Much like Romania’s UiPath, which is also considering an IPO, Infobip could become a big source of tech wealth in a country where average salaries still lag behind the rest of Europe.

BOLT

Bolt, a leading European on-demand transportation platform (formerly known as Taxify), launched an environmental impact fund with a seed capital of €10 million aimed at initiatives that deliver global social and environmental benefits.

The company now plans to operate 130,000 electric scooter and ebikes by 2021.

AUTO1

Auto1 Group’s marketplace is Europe’s leading used-car platform where buyers and sellers of cars can connect and do business. The Berlin-based company was founded in 2012 and 7 years later it matches supply and demand in over 30 countries, with a portfolio of over 30,000 vehicles.

MindMaze

MindMotionPro has pushed MindMaze to be worth over 1 billion dollars and hence converting its startup status to become the first Swiss unicorn. It has developed digital therapies to help patients with Alzheimer’s and Parkinson’s, among other conditions. 

DELIVEROO

Deliveroo has so successful enmeshed itself into the lives of consumers across Europe that its name has even become a noun. That ubiquity has landed it plenty of investment over the years — but also scrutiny.

Venture Capital in Q3 2020 – Healthcare funding on the rise

Venture Capital in Q3 2020 – Healthcare funding on the rise

Despite the economic volatility in the US and COVID-19 pandemic — the venture capital (VC) and startup ecosystem have broadly spoken, been resilient in 2020. Pitchbook and CB Insights report provides a detailed overview of venture capital funding in Q3 in 2020. Most VCs have adapted to new, remote ways of doing business and capital invested continued at a strong pace in the third quarter. VC investments to US-based, VC-backed companies hit a 7-quarter high in Q3’20 at $36.5B, up 22% year-over-year (YoY), and 30% from Q2’20.

The startup ecosystem appears to be responding admirably to the grave challenges currently facing the US. Startups and entrepreneurs look to be moving aggressively to address the major challenges of our time: climate change, healthcare and COVID-19.

Moreover, Crunchbase data shows increased investment between Q1 and Q3 2020 versus the same period in 2019 in health care, apps, payments, education, and gaming.

This surge in investment over the last two quarters could result in a five to 10 year boost for the industry.

While traditional IPOs are a good option for high-growth companies in the current climate, an alternative way to go public has gained popularity in the ecosystem: the special purpose acquisition company (SPAC).

Not all trends in the ecosystem have been positive. The number of seed and early-stage VC investments has rapidly declined, and we have seen an even steeper reduction in the number of first financings for startups, which reached a 10-year low in Q3.

Seed and Angel Investment

As the seed market continues its sluggish pace through Q3, angel investments have remained rather resilient. At $2.6 billion, seed funding in the third quarter was down 32 percent year over year and down 11 percent quarter over quarter. It’s worth keeping in mind that seed is the stage with the most extensive reporting delays, as smaller seed fundings are often not reported via the news cycle, but added by founders over time.

Source: Crunchbase

With deal sourcing moving online, the first major challenge COVID-19 brought to the venture market has slowly lessened over
the third quarter as the industry adjusted to the digital setup. With deal sourcing moving online, the first major challenge COVID-19 brought to the venture market has slowly lessened over the third quarter as the industry adjusted to the digital setup.

Early-stage VC

Early-stage VC deal activity showed signs of rebounding in Q3 2020 with $9.2 billion raised across 657 deals, bringing the YTD
total to $27.7 billion across 2,351 deals. However, early-stage VC deal activity in 2020 is unlikely to match the 2019 activity.

After a lackluster Q2, early-stage investors are becoming more comfortable investing in this “new normal” – reports Pitchbook.

Many investors have begun to step outside their comfort zones and embrace deals from entrepreneurs beyond their immediate network, particularly in sectors that accelerated due to the ongoing pandemic, such as telemedicine and education technology.

Healthcare Venture funding

Notably, 19 of the 25 largest early-stage VC deals in Q3 were in healthcare. Rock Health reports $4 billion in funding for U.S. digital health startups this quarter, much of which was driven by a flurry of telehealth investments and late-stage rounds for R&D and fitness tech companies.

That said, 2020 is the largest funding year ever for digital health. The $4.0B invested in US-based digital health startups through Q3 brings the year’s running total to $9.4B. At least $2.4B has been invested each quarter this year—consistently above the quarterly average of $2.1B across 2018-2019.

Source: Rock Health Funding

Communities and their healthcare infrastructure are bracing for future waves of COVID-19—potentially compounded by flu season. Provider systems and practices with depleted finances face the potential of months of lower utilization and a shifting payer mix with more Medicaid, individually insured, and uninsured patients.

It is unlikely that the economy, healthcare, or our personal lives will return to the “old normal” any time soon. 

Twenty-four (24) digital health companies have raised mega deals of $100M or more through Q3 of 2020.This already doubles the previous annual record of 12 mega deals set in 2018. Mega deals account for well over one-third (41%) of total digital health funding so far this year with connected fitness company Zwift raising the largest round so far—$450M in Series C funding.

The rise in mega deals reflects a trend towards capital concentration in digital health venture investment. Funding for companies that offer telemedicine specifically saw a significant spike from Q1-Q3 2020 compared to Q1-Q3 2019—$1.6B in funding compared to $662M, an over two-fold increase.

Source: Rock Health Funding

Driven by the near shutdown of our traditional healthcare system for in-person visits, utilization of the former—synchronous patient-provider visits—have skyrocketed. By one estimate, telemedicine claims in the US rose by over 4000% between June 2019 and June 2020.

Telemedicine will keep rising and we can expect to see this industry to receive more funding in 2021.


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