When startups raise money, they do it with rounds of investments called the Seed Round, Series A-B-C, all the way until they either incorporate or exit. In each round, the company receives money from venture funds that focus on specific growth points at specific sizes.
Basically, you can break a startup’s funding rounds into the following stages:
A seed round is when a company gets a small amount of money during fund raising to give it the momentum it needs to produce its initial product.
Normally, the company will have a concept and will know that it has the potential viability on the market, but they would not have a working prototype yet.
Seed money gives the company just enough runway to move from this early conceptual phase toward a product.
At this stage, you are expected to have proved your concept or have a prototype. You can seek funding from a venture capital group to work toward bringing your product to market.
The series A funding will be larger than the seed round (usually between $3 million USD and $7 million USD), and will be offered in exchange for a portion of the company.
Startups typically use series A funding to figure out the best business model for their company and to work out the nuts and bolts of moving your product into the actual marketplace.
By the time you have reached series B, a startup has a product and a business model and need enough capital to bring the product to a broader market.
This represents a significant increase in the funding, from $7 million to upwards of $50 million.
This is all about fast growth.
In series C funding, companies might move the work they’ve been doing in series B toward international markets or focus on diversifying their product for multiple different platforms.
How long should you spend on fundraising rounds?
Funding rounds can go on forever if the startup wants. In each round of funding, you offer a piece of your company to the investors.
This works great in the first few rounds, since the company’s valuation grows as people invest.
However, since you give up about 25% of your company each time someone invests, after a couple of rounds of funding, you probably would not have much left to offer an investor.
At that point, it is important for a company to either sell (like Instagram did) or to start trading publicly (like Facebook).
A good model for thinking about how this form of growth works is Instagram. Instagram started with a $500,000 seed round, and then within 2 years of that raised a $7 million series A and later a $50 million series B funding, before they were finally bought out by Facebook.
Generally, a startup can expect between a $100,000 and a $1,000,000 in their seed round funding. With each round of funding, the startup gives up a portion of the company (usually about 25%) to their Funders. Occasionally, startups skip the seed round and raise a few million dollars of series A funding right out of the gate, but with the Instagram model of funding above much more typical.
If you are looking for access to finance, send a Whatsapp message to +234 903 915 1191 for a quick confidential chat.
You can also contact us in the contact box below and explain to us your unique challenge around accessing funding to grow your business exponentially.