From Pre-Seed to Series C: Startup Funding Rounds ExplainedPart two of my nine-part series, exploring every imaginable aspect of startup funding. From funding rounds to valuation methodologies, get ready for a complete crash-course in funding.Startups and VCs:
The Funding Journey
The last decade has seen a few persistent trends reshape the way startups raise investment
- To fully understand why modern-day investment looks the way it does, we need to get to grips with these changes
- Let’s look at the process startups go through on their fundraising journey
Pre-seed
This is the first type of fundraising round available to founders. Led by many of the same investors that lead seed rounds, pre-seed financing is often used to bridge the gap to the next round.
- Average Funding Amount: <$1 million
- Typical Company Valuation: $1-3 million Common Investors: Friends and family, early-stage angels, startup accelerators
Series C+
Raised to fuel large-scale expansion, like moving into a new market (commonly international expansion) or to fuel acquisitions of other businesses.
- Average Funding Amount: $50 million
- Typical Company Valuation: $100-120 million Common Investors: Late-stage VCs, private equity firms, hedge funds, banks
SEED
Capital from a seed round often fuels a startup’s move beyond its founding team, funds product development, and in some cases, even facilitates early revenue generation.
- Traditionally, seed rounds were the reserve of angel investors, but the proliferation of cash-rich VC funds and a huge range of startups to invest in has attracted more venture capital firms into seed round investment
- The median angel-funded seed size is around $150,000 while the median VC-led seed is closer to $1.5 million
- Common investors: Angels, early-stage VCs, startup accelerators
Recomended Reading
What does it take to raise capital, in SaaS, in 2016?
Series A
Revenue growth is driven by a single (and not always scalable) channel
- To keep growing at a rapid rate, it’s necessary to develop new sales and marketing processes, identify new channels, and get to grips with your ideal customer
- Angels (often referred to as “super” angels) will sometimes invest in Series A rounds, but it’s usually the venture capital organisations that dictate this round
Series B
Investors are looking for the next stage of growth: the ability to take everything you’ve learned, and make it work at scale.
- In practical terms, Series B investment might allow a startup to make expansive hires, expand into different market segments, or experiment with different revenue streams.
