Written December 12, 2018
The lines between the rounds have blurred, but this is the general fundraising path.
Friends and Family/Pre-Seed/Accelerator
This is the least formal round of investing and as such there are no hard rules. Keep in mind that any investment deal, even one from Aunt Martha, should be in writing, and, while an accelerator may provide capital, their real contribution is industry contacts and mentorship.
Seed Round Funding at this stage may come from angel investors, targeted funds, and accelerators and incubators, who may provide $10,000 to over $100,000 in startup capital.
These funds are often used for further research, testing product-market fit, key hires, and product development.
Seed investors take risks, because of the higher risk at this stage, convertible notes are often used.
Series A Making it to this stage typically requires having gained some proof of concept. Investors are beginning to look at real data to see what the startup has to show for the money previously invested. This may not necessarily be revenue, but they want to know what key metrics are being improved.
Capital from this round is typically about optimizing what has been done and discovered so far. It is for honing the business model into something which can then be scaled. Earlier investors may participate. Though at this stage startups will begin to require the partnership of investors who can really help with taking the venture to the next level.
Series A investors are usually venture capitalists or angels.
Series B By a Series B round startups are definitely looking for VC level participation. This stage is about building out the company and building on existing success. Capital may be used for expanding teams, geographic expansion into new markets, and general scaling.
A Series B round probably involves a raise in the tens of millions of dollars range. Profits may still be scarce, though the startup should be firing on all cylinders and demonstrating traction and a business model that works. Investors at this stage need to be chosen carefully in order to make the leap to enterprise levels. Potential acquisitions are probably already being eyed.
Series C or more If you make it to this stage you are probably really getting to the big time. You likely have a company valued in excess of $100 million. You’ll probably be raising in the range of $50 million-plus.
From here it is likely going to be a sprint to an exit. At this point, you will be working with the biggest venture capital firms and maybe even corporate level investors. However, this can also be one of the toughest rounds for founders. Investors are likely to be demanding and the due diligence process intensive.
Because D.I.Y. won’t C.Y.A.
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