What are the different types of funding rounds?
There are several different types of funding rounds used to fund startups, which include:
Pre-Seed: This stage typically refers to the period in which a company’s founders are first getting their operations off the ground. Founders can expect to receive a small investment from friends and family, early-stage angels, or startup accelerators, often below $1 million. It helps founders hit one or more milestones before they are ready for the “real” investment rounds.
Seed / Angel Round: The first official round of funding for your startup. If you don’t have the capital to support the best idea in your industry you have little chance of surviving. Angel investors are one of the most common sources of seed funding for startups. there’s significant risk when investing in an unproven startup. One of the major advantages of seed funding is that your investors will understand that risk and be willing to take it on. You’ll also benefit from the expertise and network of your investors. From you, they will want to see a working prototype, your MVP (minimum viable product), and at least some initial traction. It’s not uncommon for these rounds to produce anywhere from $10,000 up to $2 million for the startup in question.
Series A: Some “Super” Angels may be involved in series A rounds, but you will most commonly be dealing with VCs here, so it’s best to come in prepared. Investing in this stage is still considered high risk, so you must have clear and growing evidence of your product-market-fit. VCs will want to see a significant influx of revenue and growth and increase ARPA (average revenue per account). Let the VCs know precisely how you and your team plan on using the raise to take you to the growth stage.A Series A round of shares is typically offered in exchange for funding.
Series B: It is all about scaling and growth. Your company has a level of stability, a well defined business model and has traction with users. The median Series B startup has a pre-money valuation of $40 million. However, this success isn’t necessarily measured in profits with many still at a net negative profit. Signs of growth during this stage should include an expanding customer base, increased revenue, and success of products and services. During this round of funding by private equity and venture capitalist they look to bulk up on business development, sales, advertising, tech, support, and employees.
Series C: Companies that go to this round of investments already have proof of their success and a high valuation. Series C funding is a crucial step for any company hoping to go public, expand their business or be acquired. Most startups consider Series C to be the final round of funding. While it’s possible to undertake later rounds of funding, they’re typically used to help organizations push toward an IPO.