A startup is a commercial enterprise. It is based on an original concept and requires funding for its development. The main investors in startups are usually venture funds. These projects can be focused on both the local and international markets. Fintech expert Sergey Kondratenko emphasises that investing in startups has high risks since only a small percentage of them achieve success and bring high profits to investors.
The 2024 forecasts for venture capital firms indicate a favorable outlook for startup investment. There is expected to be a revival of interest in neobanks, defense technologies and the emergence of new entrepreneurs launching startups.
Sergey Kondratenko is a recognised specialist in a wide range of e-commerce services with experience for many years. Now, Sergey is the owner and leader of a group of companies engaged not only in different segments of e-commerce, but also successfully operating in different jurisdictions, represented on all continents of the world. The main goal is to drive new traffic, create and deliver an online experience that will endear users to the brand, and turn visitors into customers while maximising overall profitability of the online business.
Startups, soil, and tools for their financing – global trends
In 2023 the number of new startups that received funding decreased. Data from Crunchbase show that in 2020 almost 12 thousand such projects were registered in the USA, Europe, and Israel, despite the impact of the pandemic. However, by 2023 their number had dropped to less than 2 thousand.
The US saw the sharpest decline, down 86%, from 6,424 to 1,046 startups. Interestingly, the number of entrepreneurs seeking funding has not decreased, but even increased. Analysts suggest that this situation occurred due to mass layoffs in the IT sector. In the United States alone, 243 thousand developers were fired this year, which is an absolute record in the entire history of observation.
They say the best startups come from tough times. Based on the current situation, 2024 will provide fertile ground for outstanding companies. Founders are working hard to attract support. Given the fluctuations in the financial sector over the past two years, venture capital funds are facing limited cash flow, which is slowing the pace of investment. Gaining the trust of consumers is becoming increasingly difficult due to the reduction in their spending.
Turning an idea into a viable business depends on many factors, among which the availability of sufficient funding is fundamental.
At the initial stage of the project, founders can use their resources. However, in most cases, such funds are not enough or are only enough for the first steps. One of the key tasks of a startup is to search for various sources of financing.
The expert gives examples of tools for raising funds for the project:
- Angel investors: individuals who are ready to invest their funds in promising startups.
- Crowdfunding: Raising funding from the general public through online platforms.
- Investment banks: assistance in structuring and attracting investments.
- Corporate investments: investments from large companies in young promising projects.
- Government Grants: Government funding to stimulate innovation.
- Private placements: sale of securities to a limited number of investors.
- Incubators and accelerators: support and financing programs for startups.
- Credits and loans: obtaining funds on collateral or on repayment terms.
- Corporate Partnerships: Collaborating with large companies to share resources.
- Attracting angel partners: expanding the team with people willing to invest their knowledge and funds.
- Strategic investors: investors who bring not only money but also business experience.
- Investments from real estate funds: the possibility of obtaining real estate-related financing.
- Trading securities on financial markets: obtaining capital through the issue of shares.
- Sale of a share in a company: transfer of part of a business in exchange for investment.
- Business angels and mentors: people who are ready not only to invest but also to share experience and connections.
The choice of the optimal tool, according to Sergey Kondratenko, depends on the nature of the business, its stage of development, and the goals of the startup. Based on these principles, the specialist suggests considering the two most popular ways to attract investment in startups.
The Crowdfunding in financing startups: types and principles
Crowdfunding is the process of raising small amounts of funds from an undefined audience known as the “crowd.” As Sergey Kondratenko explains, crowdfunding platforms play the role of intermediaries between those who want to contribute and those who need support. They actively use various marketing strategies aimed at attracting potential donors. Thus, the specialist emphasises the importance of identifying key factors that influence the decisions of crowdfunding participants. This is especially important in the context of using social media platforms for fundraising.
– There are different types of crowdfunding: charitable crowdfunding, fee-based, debt, and equity. When choosing a type and platform, it is extremely important to carefully study its rules, reputation, and number of successful projects to avoid possible risks, says Sergey Kondratenko.
The expert states that according to the Arora project (a portal that specialises in managing crowdfunding initiatives and analysing statistics), in 2023 the volume of investments in startups through crowdfunding platforms reached $502 million. This year, according to analysts, an increase in capital investments on this principle is expected.
Angel investing and venture financing: new strategies and approaches
Venture funding involves the transfer of a certain share of the business to the investor. This gives him the right to participate in future profits and internal processes of the company. According to Sergey Kondratenko, the startup founder in this case partially loses control over the project. But in exchange, he receives not only financial support but also other resources.
The expert states that venture capital funds invest in a company to support its development until it reaches a certain size and performance indicators. This makes it ready for sale or public offering on the stock market through an IPO. If the startup idea is successfully implemented, its value increases. In this case, the investor can exit the transaction and get back the invested funds with additional profit.
Private financial strategists, known as business angels and super angels, actively seek opportunities to invest their money in early-stage startups. They seek to acquire a stake in promising projects that have high-profit potential and significant growth.
– The difference between business angels and super angels comes down to the size of the investment they are willing to provide. The financing mechanism is generally similar: investing in projects with an expected annual income increase of 50%. But in cases where business angels do not have enough funds to implement a project, a super angel is ready to invest amounts of $0.5–1 million. Thus, he creates a bridge between the small investments of business angels and the capital that a venture fund can provide.
The expert believes that choosing the best method of financing largely depends on the unique characteristics of the startup, its field of activity, and its stage of development. At the initial stage or when implementing a small project, it is quite possible to use your funds or apply for a bank loan. However, with growth and development, larger-scale financial investments are required, which can be attracted using modern technologies.
