Startup funding rounds: A handbook from seed to exit

As funding rounds often make headlines, a first-time founder or investor may find it difficult to understand the complexity behind the letters A, B, C, or D that come with a different amount of money being invested into a firm.

While most startups publicise their financing as a chance to strengthen their brands to customers or attract new investors for the next funding rounds, some decide to remain details of the transaction undisclosed as it may propose additional threats to their other businesses.

The funding round marks an important milestone for a private business as it usually goes hand in hand with a new valuation of the firm in the market. This demonstrates its probability of success, expansion of customer base, and proof of concept.

A fundraising process may last from several months to even a year, with involvements of both current shareholders and new investors. The capital is planned to be utilised in a specific period of time from one to two years depending on the business’s strategies and pivots afterwards.

If there are outside investors, founders and investors will negotiate on what amount of capital will be injected in exchange for how many shares and on what terms.

This evaluation process involves pitching and due diligence steps, which requires the company to be engaging in the way they tell their stories and transparent in business metrics and development plans.

Also Read: Finance your startup: 10 types of investors you should know

If there are several backers, one often takes the lead and also secures a seat on the company’s board after sealing the deal. The startup can also decide who they want to become its strategic investor instead of willing to sell their share to any buyers expressing interests.

  1. Self-funding/Pre-seed
  2. Seed
  3. Series A
  4. Series B
  5. Series C
  6. Series D
  7. Extension round
  8. Bridge round
  9. Exit

Self-funding/Pre-seed

Self-funding, also known as pre-seed, is the most common way for new businesses to get started. Self-financing means that founders inject the initial capital into the company out of their own pockets. The money may come from personal funds and assets, credit cards, or loans.

This stage has fewer complications and documentation requirements compared to later-stage funding rounds.

If a business model requires little initial investment, self-funding or bootstrapping is considered to be a good option. It allows founders to keep their ownership of the company while avoiding the burden of continuing loan payments in early stages.

Funding amount: ~ US$50,000

Valuation: US$10,000 to US$100,000

Seed

Seed funding is seen as the first official equity funding stage of a startup. This often aids the company in determining and implementing the best course of action for their venture.

Also Read: Exit Strategies: Ways to get your money back besides IPOs and M&A

The funds raised are used to validate the market demands, preferences, and tastes. The startup then builds up the first versions of the product or service that serve these insights.

The potential investors in this stage may include angel investors, micro venture capitals, crowdfunding, friends, and family. Some founders believe that a seed round of fundraising is all they need to get their firm off the ground, whereby these companies decide not to engage in a Series A round or later.

Funding amount: US$150,000 to US$3 million

Valuation: US$500,000 to US$6 million

Series A

Series A is known as the first stage of the venture capital financing round. A firm often raises Series A funding to expand its user base and product offerings after record initial traction that includes a stable user base, consistent revenue statistics, or some other critical performance indicators.

Accelerators, venture capitalists, and angel investors often join this round.

Funding amount: US$3 million to US$10 million

Valuation: US$15 million to US$30 million

Series B

Series B rounds are all about pushing businesses through the product-market fit phase and into the next growth stages. This funding round allows a firm to scale, gain market share, expand high-quality teams, and foil rivals.

Many of the same investors from the previous round generally lead Series B, including a major anchor investor who helps to attract other investors. The distinction between Series A and Series B is the addition of a new generation of later-stage venture capital companies.

Funding amount: US$15 million to US$30 million

Valuation: US$30 million to US$60 million

Series C

Series C finance is aimed at scaling the business and ensuring that it grows as swiftly and profitably as possible. These businesses seek more capital to help them create new offerings, grow into new markets, or even buy other businesses.

Also Read: Finance your startup: 10 types of investors you should know

In this stage, the investors sometimes hope to acquire the startup. Meanwhile, many companies utilise Series C capital to increase their valuation in anticipation of an IPO. Companies that net up to hundreds of millions of dollars in funding are also often ready to expand globally.

The founders and the investors are said to be careful about the Series C round as the more investment rounds there are, the less equity the founder owns.

Funding amount: US$30 million to US$50 million

Valuation: US$100 million to US$120 million

Series D

Series D or Series E round is only used in one-of-a-kind circumstances including a merger or acquisition and is not typical in the venture capital financing progress.

This is also employed when the startup is on track for an IPO, or to reach other business targets that they failed to achieve with previous funding in Series C.

Extension round/Bridge round

Extension financing rounds are seen as an alternative to waiting for a new round or not raising at all. Similarly, a bridge round is an amount of money given to a business to help it get by until the next larger round of investment.

While an extension round may indicate strong interest from the capital market, a bridge round can be considered an emergency situation for entrepreneurs who is in need of cash to run their business.

Traditional funding rounds also have diverse commercial objectives for startups, but a bridge round’s primary aim is to bring the firm to its next financial event.

Depending on considerations such as how much ownership they want to maintain and their repayment outlook, startups might opt to obtain bridge capital through venture loans or equity.

What about pre-Series X round? Occasionally, we might discover news from startups announcing this kind of funding round. Anand Lunia of India Quotient told YourStory, “VCs see Pre-Series A round as seed stage investment. It’s just a new label for startups that secured seed round and failed to convince venture capitalists for a Series-A round.”

While this explanation might sound negative, there is a reason why startups often label their funding round as such. We need to remember that in some markets, the benchmark for a Series A or B funding round can be relatively high, and the Pre-Series X funding can serve as a follow-on funding until a company can raise the expected number for Series A or B.

Exit

An exit allows business owners to raise money for their firms from the public on the stock exchange or another company in an M&A. We published a comprehensive guideline on exit strategies that investors and founders can rely on when they look for a possible payout.

You may have also heard about a pre-IPO funding round which Investopedia defined as the sale of large blocks of stock in a company in advance of its listing on a public exchange. This enables purchasers to get shares at a discount from the IPO price and allows the company to raise funds and offset the risks that IPO is not as successful as it expected.

Ready to meet new startups to invest in? We have more than hundreds of startups ready to connect with potential investors on our platform. Create or claim your Investor profile today and turn on e27 Connect to receive requests and fundraising information from them.

Image Credit: dragonimages

The post Startup funding rounds: A handbook from seed to exit appeared first on e27.

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As funding rounds often make headlines, a first-time founder or investor may find it difficult to understand the complexity behind the letters A, B, C, or D that come with a different amount of money being invested into a firm.

While most startups publicise their financing as a chance to strengthen their brands to customers or attract new investors for the next funding rounds, some decide to remain details of the transaction undisclosed as it may propose additional threats to their other businesses.

The funding round marks an important milestone for a private business as it usually goes hand in hand with a new valuation of the firm in the market. This demonstrates its probability of success, expansion of customer base, and proof of concept.

A fundraising process may last from several months to even a year, with involvements of both current shareholders and new investors. The capital is planned to be utilised in a specific period of time from one to two years depending on the business’s strategies and pivots afterwards.

If there are outside investors, founders and investors will negotiate on what amount of capital will be injected in exchange for how many shares and on what terms.

This evaluation process involves pitching and due diligence steps, which requires the company to be engaging in the way they tell their stories and transparent in business metrics and development plans.

Also Read: Finance your startup: 10 types of investors you should know

If there are several backers, one often takes the lead and also secures a seat on the company’s board after sealing the deal. The startup can also decide who they want to become its strategic investor instead of willing to sell their share to any buyers expressing interests.

  1. Self-funding/Pre-seed
  2. Seed
  3. Series A
  4. Series B
  5. Series C
  6. Series D
  7. Extension round
  8. Bridge round
  9. Exit

Self-funding/Pre-seed

Self-funding, also known as pre-seed, is the most common way for new businesses to get started. Self-financing means that founders inject the initial capital into the company out of their own pockets. The money may come from personal funds and assets, credit cards, or loans.

This stage has fewer complications and documentation requirements compared to later-stage funding rounds.

If a business model requires little initial investment, self-funding or bootstrapping is considered to be a good option. It allows founders to keep their ownership of the company while avoiding the burden of continuing loan payments in early stages.

Funding amount: ~ US$50,000

Valuation: US$10,000 to US$100,000

Seed

Seed funding is seen as the first official equity funding stage of a startup. This often aids the company in determining and implementing the best course of action for their venture.

Also Read: Exit Strategies: Ways to get your money back besides IPOs and M&A

The funds raised are used to validate the market demands, preferences, and tastes. The startup then builds up the first versions of the product or service that serve these insights.

The potential investors in this stage may include angel investors, micro venture capitals, crowdfunding, friends, and family. Some founders believe that a seed round of fundraising is all they need to get their firm off the ground, whereby these companies decide not to engage in a Series A round or later.

Funding amount: US$150,000 to US$3 million

Valuation: US$500,000 to US$6 million

Series A

Series A is known as the first stage of the venture capital financing round. A firm often raises Series A funding to expand its user base and product offerings after record initial traction that includes a stable user base, consistent revenue statistics, or some other critical performance indicators.

Accelerators, venture capitalists, and angel investors often join this round.

Funding amount: US$3 million to US$10 million

Valuation: US$15 million to US$30 million

Series B

Series B rounds are all about pushing businesses through the product-market fit phase and into the next growth stages. This funding round allows a firm to scale, gain market share, expand high-quality teams, and foil rivals.

Many of the same investors from the previous round generally lead Series B, including a major anchor investor who helps to attract other investors. The distinction between Series A and Series B is the addition of a new generation of later-stage venture capital companies.

Funding amount: US$15 million to US$30 million

Valuation: US$30 million to US$60 million

Series C

Series C finance is aimed at scaling the business and ensuring that it grows as swiftly and profitably as possible. These businesses seek more capital to help them create new offerings, grow into new markets, or even buy other businesses.

Also Read: Finance your startup: 10 types of investors you should know

In this stage, the investors sometimes hope to acquire the startup. Meanwhile, many companies utilise Series C capital to increase their valuation in anticipation of an IPO. Companies that net up to hundreds of millions of dollars in funding are also often ready to expand globally.

The founders and the investors are said to be careful about the Series C round as the more investment rounds there are, the less equity the founder owns.

Funding amount: US$30 million to US$50 million

Valuation: US$100 million to US$120 million

Series D

Series D or Series E round is only used in one-of-a-kind circumstances including a merger or acquisition and is not typical in the venture capital financing progress.

This is also employed when the startup is on track for an IPO, or to reach other business targets that they failed to achieve with previous funding in Series C.

Extension round/Bridge round

Extension financing rounds are seen as an alternative to waiting for a new round or not raising at all. Similarly, a bridge round is an amount of money given to a business to help it get by until the next larger round of investment.

While an extension round may indicate strong interest from the capital market, a bridge round can be considered an emergency situation for entrepreneurs who is in need of cash to run their business.

Traditional funding rounds also have diverse commercial objectives for startups, but a bridge round’s primary aim is to bring the firm to its next financial event.

Depending on considerations such as how much ownership they want to maintain and their repayment outlook, startups might opt to obtain bridge capital through venture loans or equity.

What about pre-Series X round? Occasionally, we might discover news from startups announcing this kind of funding round. Anand Lunia of India Quotient told YourStory, “VCs see Pre-Series A round as seed stage investment. It’s just a new label for startups that secured seed round and failed to convince venture capitalists for a Series-A round.”

While this explanation might sound negative, there is a reason why startups often label their funding round as such. We need to remember that in some markets, the benchmark for a Series A or B funding round can be relatively high, and the Pre-Series X funding can serve as a follow-on funding until a company can raise the expected number for Series A or B.

Exit

An exit allows business owners to raise money for their firms from the public on the stock exchange or another company in an M&A. We published a comprehensive guideline on exit strategies that investors and founders can rely on when they look for a possible payout.

You may have also heard about a pre-IPO funding round which Investopedia defined as the sale of large blocks of stock in a company in advance of its listing on a public exchange. This enables purchasers to get shares at a discount from the IPO price and allows the company to raise funds and offset the risks that IPO is not as successful as it expected.

Ready to meet new startups to invest in? We have more than hundreds of startups ready to connect with potential investors on our platform. Create or claim your Investor profile today and turn on e27 Connect to receive requests and fundraising information from them.

Image Credit: dragonimages

The post Startup funding rounds: A handbook from seed to exit appeared first on e27.

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