Different rounds of investment in a start-up

We explained previously in this article why some start-ups need to apply for funding. We mentioned that they raise fund mainly for growth purposes.

The start-up needs to go through number of funding rounds and prove that the idea deserves the money, meeting different goals and challenges every time. Each round is designed to raise enough capital to meet a specific target corresponds to in which stage the start-up is positioned now.

Here we will list the different funding rounds and correlate it with the different stages of the start-up lifecycle:

Pre-Seed Round

Pre-seed funding is when founders are trying to give their idea the initial push and often invest their own money, or the people who are believing in you and your idea such as family and friends.

Seed/Angel Round

The seed round typically occurs when the business is still in the idea stage or when the founder has a prototype or proof of concept and some indication that there is a market need for what they are proposing to sell.

If not earlier, an angel round frequently happens when a company is barely getting started. It is likely that it won't be generating a large enough cash flow to cover all of the day-to-day operating expenses, which means that an investment will be required to operate the firm.

Despite the names, a sizable part of funding for both seed and angel investment rounds typically comes from friends and family. It may also involve capital from angel investors who support start-up businesses.

Given that the company will likely have little to no track record and that the risk would be greater than it would be for a more established company, investors will typically invest smaller sums in exchange for shares.

Series A round

Investing at this stage is typically viewed as high risk because the company will likely still be in the beginning stage with a lot to prove, similar to the prior round.

After a company has issued share options (usually to founders and employees), it will often offer a Series A round of shares in return for funding.

Venture capitalists might be interested, but angel investors also might. Angel investors frequently have substantial net worth and invest their own money. VCs and other institutional investors frequently invest other people's money, therefore in order to lower their risk, they typically only invest in businesses having a track record of success.

Series B round

A series B round is, as you might have guessed, the second round of funding provided by VCs and private equity investors. The corporation will likely be valued more than it was earlier at this point. Due to the business's track record and reduced risk than before, investing will cost more money.

Investors will expect to see signs of growth at this stage in:

• Revenue
• Users
• Product/service success

Series C round

A Series C financing is typically necessary when a business is ready to pursue rapid expansion. The business will typically:

1. have achieved market success that can be verified
2. intends to acquire competitors
3. Boost market share

Increase production or create new goods or services.

It is simple to comprehend what a round means for the company raising money and how far along it is on the path to becoming an IPO by understanding the differences between each sort of funding round.

IPO

Initial public offering (IPO) is the process of making a private company's shares available to the general public and is the last phase of a startup's life. At this phase the start-up turns into a company available for anyone to buy stocks in it.

This enables access to a sizable quantity of capital on the open market as well as a higher degree of transparency. However, since you now have to deal with shareholders in addition to investors, it also entails more complication. You should anticipate that such partnerships will take a lot of work and be difficult and expensive.