Startup fundraising stages
When you read news stories reporting that a hot new startup has raised $3 million in seed funding for its biz-dev venture or that a startup that has been around for a while has put together a €15 Series A round to help tackle climate change, it feels as if the stages of startup funding are a neat and clearly defined ladder. In truth, startup funding stages are as fuzzy as a boiled sweet that’s been down the back of your sofa for six months.
It does help to have some kind of idea of what stage you’re at when it comes to VC funding. First and foremost, VC funds usually have a thesis that dictates the stage of a startup’s lifecycle when it’s prepared to invest financially. There’s no point in wasting your time asking for a meeting at a fund where they are focused on Series A rounds, and you’re still in your pre-seed stage. But also, it’s just a helpful descriptor when you’re talking about your business.
The basics: pre-seed, seed, and Series A
Pre-seed funding usually comes in at under $1 million and is there to help a startup prove the concept of its idea.
Seed funding is the next stage. It comes when a startup has proved its concept and built an MVP but needs to transform it into a repeatable business model. Seed funding doesn’t typically exceed $5 million and is usually between $1 and $2 million.
A Series A round takes the repeatable business model thrashed out in the seed round and grows it into a business approaching profitability. Series A rounds generally raise between $5 million and $20 million.
Angels, bridges, extensions, and parties
In addition to pre-seed, seed, and Series A (and further along the alphabet) rounds, you might well hear about angel rounds, bridge rounds, and extensions.
Angel rounds are usually provided early in a startup’s life and help get it going. Angels are primarily single investors rather than institutional investors, and the funding is $100,000.
Party rounds happen at a similar stage to angel rounds and primarily consist of founders’ friends and family throwing some of their money behind the idea to see if it will fly.
Bridges and extensions tend to happen later and aren’t necessarily a positive. That said, they aren’t always a negative, either. When a startup is looking for a bridge or an extension round, it’s often because the founders miscalculated how much they needed in their previous round and are running out of cash, or they could have encountered a significant mishap that requires an injection of funding. Of course, their business could have just taken off far faster than they ever anticipated it might, and they need more money to sustain their growth at an incredible rate. Still, whenever I see the words ‘bridge’ or ‘extension’ in conjunction with a funding round, it sets off my spidey senses regarding how well the founding team manages the business.
But hey, I saw a pre-seed round for $5 million the other day! What gives?
Round sizes aren’t set in stone, and for some types of tech that are overwhelmingly research-intensive, a $500,000 pre-seed round will just not accomplish anything meaningful. It’s not unusual to see deep tech startups or those in the aerospace and defense arenas raise seed rounds north of $5 million.
Knowing where you stand
If you need to work out your funding stage to raise money or just to help you describe your startup to anyone who asks, think about what you’ve accomplished to date. From a vague idea to an MVP to a repeatable business model that you want to grow, you have the rough stages of a startup.
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