Calling capital is the long-term process of a startup before exiting. However, not many startups could clearly know how many stages they should pass and what investors they can connect with in each round. Understanding the importance of insight into fund calls, this article will let you know how many funding rounds your startup needs to reach a successful exit.
Early-stage
Early-stage startups focus on raising project ideas, product development, building a customer base, and establishing a strong cash flow. The fund for this stage is crucially important that deciding the fate of the startup. It typically has two minor phases this stage:
1. Pre-seed
Pre-seed stage or bootstrapping stage is the time to operate getting off the ground. Your startup uses this period to pop the idea and set an initial plan for it. It’s also the time to assess the viability of your idea by building the product or service prototype. Therefore, Venture capital firms are unlikely to fund in exchange for equity because of the hazards of throwing their money into the fire. So, you must depend on your own money or get support from your family or close friends.
In general, it is rare to seek out an angel at this stage, but it’s still viable to try if your idea can get their attention. The amount of pre-seed is under 150k. However, basing on startups' resources to self invest or raise from outside, sometimes it can reach $5M at pre-seed stage.
2. Seed
So now, after passing the pre-seed stage, your company has more experience in running your startup, and already knows how to demonstrate your project into a viable investment opportunity. The goal in the seed stage is to secure enough funding currently to prove to future investors you have the capacity to grow and scale.
The funding size in this stage can oscillate from $500k to $1M was getting up there in size for a seed deal. In 2019, the average size pre-seed raise was between $400k to $500k.
As Elizabeth Yin, Founder of Hustle Fund once said, “I’m seeing massive party rounds here in San Francisco — $3 million – $5 million seed rounds. Sometimes $10 million rounds right out of the gates! My friend, a fantastic serial entrepreneur with an exit, raised $8 million recently at $30 million+ post-money valuation with only a very early version of a product. Investors literally threw money at her and her round was oversubscribed.”
Your business can get the fund from:
Startup owner. It’s definitely your own money again in this round because it’s too early to let investors raise a large capital for your business.
Friends and family, who are able to trust in your potential, or basically just want to support you.
Angel investors. They are likely to raise their capital in this round, so your duty is just to figure out the angel and let them know you need their help to develop your business.
Early Venture Capitalists. Not only raise the fund in a later stage, but some early VCs are also interested in the early stage of the startup if they believe that it has high potential in the future.
Growth/Later stage
This period is when your startup reaches the level of having a consistent customer base and a steady source of revenue. The cash flow may begin rapidly increasing.
To improve the growth of your business, you need to hire more employees to manage the workload or even open more branches or scales of your business. That’s why calling for more funds is a big deal to satisfy these developing demands:
1. Series A
This is typically considered the very first round of venture capital financing. At the series A stage, your company mostly has completed the operation plan and has a pitch deck emphasizing product-market fits. So that, it can easier get the attention of these most common investors for the later stage:
Accelerators
Super angel investors
Venture capitalists
Corporate venture capital funds
Family Office
The fund for series is much larger than the two previous ones, business can be raised around $13M from investors.
2. Series B
Now is the time to scale your business. This stage of venture capital supports actual product manufacturing, marketing, and sales operations. To expand, you will likely need a much larger fund than the series A stage, which usually attracts from $15M to over $30M.
In series A, the investors just measured your potential, but in series B, they obviously want to see the real performances and evidence of a commercially viable product or service to support future fundraising.
The actual metrics not only can give investors more confidence to fund but show the capacity on a larger scale of your business.
To adapt the capital your startup needs in this round, these are some potential investors you should connect with:
Venture capitalists
Family offices
3. Series C and beyond
This is the expansion stage after your business has achieved success and incremental funding to build new products, leads to more markets, and even acquires other startups. It typically requires two to three years to reach this phrase on a quick trajectory. And now, you are in exponential growth and have consistent profitability.
Therefore, you definitely get more investors who are eager to participate with larger funds compared to series B. Because they know that it will be less risky to shoulder through your success evidence from the previous series.
A Series C funding amount is generally between $30 and $100M settling on an average round of $50M. At this point, a startup’s valuation is likely over $100M and they are on a national radar looking to expand internationally.
There are the most common investors who readily jump into your business in series C and beyond:
Late-stage venture capitalists
Private equity firms
Hedge funds
Banks
Corporate venture capital funds
Family offices
These above are the stages of funding that your startup should know. Insight on the difference between funding rounds helps an entrepreneur to understand what each round means to the company raising money, what they have to face, and how far along the road the company is on the way to becoming an exit.
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Wiziin Inc. provides solutions in capital raising, dealmaking, portfolio monitoring, and fund administration for VC, Angel Investors, and SMEs in the Asia Pacific Region, which is created and run by experienced venture capitalists from Ireland and Canada with an ambitious approach of a disruptive investment tool which contributes to leverage the emerging economies.