An angel round is usually a small round of funding that helps a new business get started. Angel investors, angel investor groups, friends, and family can all take part in an angel round. Since angel investors are all different people, their habits and the way they invest vary a lot. If you want angel funding, you should learn about the person and how they do business.
The first step in getting money for a new business comes so early in the process that it is usually not counted as one of the rounds of funding. This stage, also known as “pre-seed” funding, is usually when a company’s founders are just getting their business off the ground. Most “pre-seed” funding comes from the company’s founders, close friends, supporters, and family. This funding stage can happen very quickly or take a long time, depending on the type of business and how much it costs to start up the business idea. At this point, it’s also likely that investors are not putting money into the company in exchange for shares. In pre-seed funding, most of the time the investors are the people who started the business. A Pre-Seed round is a very low amount, often below $150k.
Seed rounds are one of the first funding rounds a company will get, usually when the company is new and trying to get noticed. Round sizes range from $10,000 to $2,000,000, but in recent years, bigger seed rounds have become more common. Usually, the seed round comes after the angel round (if there is one) and before the Series A round. Some startup founders believe that a seed funding round is all they need to get their business off the ground. These companies may never go through a Series A round of funding. Most businesses that are looking for seed money are worth between $3 million and $6 million.
Venture – Series Unknown
Venture funding is an investment from a venture capital firm. It includes Series A, Series B, and later rounds. This type of funding is used for any round of funding that is clearly a venture round but doesn’t say what series it is.
Series A Funding
Once a business has a track record (an established user base, consistent revenue numbers, or some other key performance indicator), it may choose Series A funding to improve its user base and products. There may be chances to sell the product in more than one market. In this round, it’s important to have a plan for building a business model that will make money in the long run. Seed startups often have great ideas that get a lot of excited users, but the company doesn’t know how it will make money from the business. Series A rounds usually raise between $2 million and $15 million, but this number has gone up on average because the high tech industry has become more valuable.
Investors aren’t just looking for great ideas in Series A funding. Instead, they are looking for companies with great ideas and a solid plan for turning those ideas into a successful business that makes money. Because of this, it’s common for companies in their Series A funding rounds to be worth up to $24 million.
In the Series A round, investors come from more traditional venture capital firms.
Investors often participate in a political process at this point. Usually, a few VC firms lead. A single investor can “anchor.” After getting its first investor, it may be easier to get more. Angel investors also contribute, but not as much as in the seed funding stage.
Equity crowdfunding is increasingly being used as part of a Series A funding round. Part of the reason is that many companies, even those that have received seed funding, struggle to attract investors for Series A funding. Less than 10% of seed-funded companies receive Series A funding.
Series B Funding
Series B rounds take companies beyond the development stage. Investors expand startups’ markets. Companies that have raised seed or Series A funding have established user bases and shown investors that they are ready for larger scale success. Series B funding helps the company meet demand.
Talent acquisition is key to building a winning product and team. Investing in business development, sales, advertising, tech, support, and employees is cheap. Most Series B companies have valuations between $30 million and $60 million because they are well-established.
Series B’s processes and players resemble Series A’s. Series B is often led by the same characters as Series A, including an anchor investor. Series B adds later-stage VC firms.
Series C Funding
Series C funding companies are successful. These businesses seek additional funding to develop new products, expand into new markets, or even acquire other businesses. In Series C rounds, investors inject capital into successful businesses to double their money. Series C funding focuses on company growth and scaling.
Acquiring another company may be one way to scale a business. Imagine a tech startup. If this company reaches Series C funding, it has likely already achieved unprecedented success in the U.S. The company may have reached coast-to-coast goals. Investors believe the business will succeed in Europe based on market research and business planning.
This tech startup may have a big competitor. In addition, the competitor may have a competitive advantage. Investors and founders believe the merger will be synergistic. Series C funding could buy another company.
Less risky operations attract more investors. Series C includes hedge funds, investment banks, private equity firms, and large secondary market groups. Because the company has already proven to have a successful business model, new investors expect to invest large sums of money into already successful companies to help secure their own position as business leaders.
Series later rounds
Some companies can also receive Series D and Series E funding. Companies that continue with Series D funding are looking for a final push before an IPO or haven’t achieved their Series C goals.
Crowdfunding is the process of getting money from the public (the “crowd”) to pay for a new project or venture, mostly through online forums, social media, and crowdfunding websites. The next step up is equity crowdfunding. Through equity crowdfunding platforms, people can invest in businesses in exchange for a share of the business. Usually, people invest small amounts of money on these platforms. However, syndicates can be made so that one person can lead the evaluation of an investment and pool funding from a group of individual investors.
During a product crowdfunding round, a company offers its product, which is frequently still in development, in exchange for funding. Similarly, this type of round is typically conducted on a funding platform.
Private equity (PE) is non-publicly traded ownership or interest. Private equity (PE) comes from HNWI and firms that buy stakes in private companies or acquire control of public companies with plans to take them private and delist them from stock exchanges.
Institutional investors like pension funds and large PE firms funded by accredited investors make up the private equity industry. Because private equity requires direct investment to gain influence or control over a company’s operations, large funds dominate the industry.
The minimum capital required for accredited investors varies by firm and fund. Some funds require $250,000. Others require millions.
The pursuit of a favorable return on investment drives such commitments of return on investment (ROI). Private equity partners raise and manage capital to generate shareholder returns.
A convertible note is a short-term loan that can be turned into a share of ownership. In a seed financing, the debt usually automatically turns into shares of preferred stock when the Series A round of financing is over. In other words, investors loan money to a startup as its first round of funding. Instead of getting their money back with interest, the investors receive shares of preferred stock as part of the startup’s initial preferred stock financing, based on the terms of the note.
When a company sells debt instruments to individual and/or institutional investors to get money for working capital or capital expenditures, this is called debt financing. In exchange for lending the money, the people or institutions become creditors and get a promise that the money they lent will be paid back, along with any interest. On the debt markets, the other way to get money is to sell shares of stock to the public. This is called “equity financing.”
A business that needs money can sell stock, take on debt, or do both. Equity is business ownership. It gives the shareholder a claim on future earnings without repayment. Shareholders get paid last if a company goes bankrupt.
A company can get the money it needs to grow and expand by selling investors fixed-income products like bonds, bills, or notes. When a company sells a bond, the investors who buy it are either individual investors or institutional investors who lend the company money. The amount of the investment loan, called the “principal,” must be paid back at a future date that was agreed upon. If the company goes bankrupt, lenders have a higher claim on any liquidated assets than shareholders do.
A secondary market transaction is a way for a company to raise money when an investor buys shares of stock from other shareholders instead of from the company itself. Most of the time, these deals happen when a private company becomes very valuable and early investors or employees want to make a profit on their investment. These deals are usually not announced or made public.
A grant is when a company, investor, or government agency gives money to a company without taking an equity stake in the company.
A corporate round occurs when a company, rather than a venture capital firm, makes an investment in another company. Most of the time, but not always, these things are done to form a strategic partnership.
Initial coin offering (ICO)
An initial coin offering (ICO) is a way to use cryptocurrency as capital to raise money through crowdfunding. An ICO is a way for a company to raise money. During the campaign, backers buy a portion of a new cryptocurrency (called a “token” or “coin”), usually with another cryptocurrency like bitcoin, in the hopes that the new cryptocurrency will grow in value.
A post-IPO equity round takes place when firms invest in a company after the company has already gone public.
When companies lend money to a company after it has already gone public, this is called a “post-IPO debt round.” In a way that is similar to debt financing, a company will promise to pay back the principal plus interest.
A post-IPO secondary round is when an investor buys shares of a company’s stock from other shareholders instead of from the company itself. This happens after the company has already gone public.
A non-equity assistance round occurs when a company or investor provides office space or mentorship and does not get equity in return.
“Funding round” is a general term for a round when there isn’t enough information to give a more specific name to the type of funding.