Pre-seed, seed, seed extension, post seed, small A, series A, series B, series C, D, E, F, etc, etc... what does all this mean? and why does it matter to know where you are? what do investors look for in each stage?
Generally founders like to raise capital at the highest possible valuation, in a future blog post, or as you'll see in our coaching sessions, that's not always the best thing for a founder, contrary to what seems like an obvious thing.
Here are the various funding stages a tech start-up goes through:
PRE-SEED
It used to be that seed rounds were the first fundraising round available to founders. But in an increasingly competitive marketplace, the growth in the number of startups has allowed “traditional” seed investors to become far more picky in their investments — raising the bar. A typical pre-seed round sees a founding team (often pre-product) receive a small investment to hit one or more of the milestones they’ll need to ready themselves for “true” seed investment: from hiring a critical team member to developing a prototype product.
Led by a new category of investors, pre-seed financing is often used to bridge the gap to the seed round, though some startups do so well with pre-seed capital and go straight to series A
Average Funding Amount: <$1 million
Typical Company Valuation: $1–4 million
Common Investors: Friends and family, early-stage angels, startup accelerators, and the new pre-seed funds
SEED
Capital from a seed round often fuels a startup’s move beyond its founding team, and facilitates early revenue generation, and in an ideal world would be enough to get past product-market-fit to early growth, which is the expectations of a series A investors, we'll cover the series A expectations later.
With the use of seed capital, the expectations are that strong signs of Product/Market Fit and some some degree of traction. The typical metrics a seed company must have to qualify for tier-1 series A investment are: SaaS 250kMRR+, Consumer 10m MAU, ecommerce $1m GMV/month.
Traditionally, seed rounds were reserved for family, friends and angel investors, but the proliferation of cash-rich VC and emergence of micro VC funds and a huge range of startups to invest in has attracted more venture capital firms into seed round investment.
Average Funding Amount: $3-5 million
Typical Company Valuation: $6–15 million
Common Investors: Angels, seed stage VCs, startup accelerators
Post-Seed
Let's start by saying if you haven't reached these metrics SaaS 250kMRR+, Consumer 10m MAU, ecommerce $1m GMV/month, then you're not ready for Series A, and if you're running low on funds what you need is a post-seed investment, a new category between seed and A. But to qualify for post-seed funding SaaS 20-50kMRR+, Consumer 500k downloads, ecommerce $100k GMV per month.
Post-seed or a small A, is not a bridge round and it's usually a priced round, there are a handful of investors who play in this category, which was invented by BullPen capital who are the leaders of this category.
SERIES A
You'll find that all stages leading up to the series A, the startup hasn't built the humming engine for growth just yet. However, at the series A, the engine must show signs of it being built and a good way to measure that is, revenue growth, not just revenue. Qualitative fundamentals and not quantitative measure of dollars raised or age translating into significant revenue matter.
It’s also here that SaaS marketing and sales become more important. Until this point, growth has often been driven by a single (and not always scalable) channel. To keep growing at a rapid rate, it’s necessary to institutionlize the sales and marketing processes, identify new channels, and get to grips with your ideal customer. This also means institutionalizing the startup and hiring the second layer of leaders, the various Vice Presidents (of sales, marketing, etc).
It’s usually the venture capital organizations that dictate this round. The increasing involvement of VCs also means that Series A rounds are rapidly increasing in size.
Average Funding Amount: $10.5 million
Typical Company Valuation: $25–50 million, I'v seen as high as $90m valuation
Common Investors: series A VCs with participation of earlier investors (angels, pre-seed, etc)
SERIES B, C, D+
In Series B, investors are looking for the next stage of growth: the ability to take everything you’ve learned, and make it work at scale.
The Series C rounds are raised to fuel large-scale expansion, like moving into a new market (commonly outside the USA or Canada), or to fuel acquisitions of other startups.
In practical terms, Series B or C investment might allow a startup to make expansive hires (across business development, strategic accounts, marketing and customer success), expand into different market segments or experiment with different revenue streams.
Average Funding Amount: $25 million up to 100m
Typical Company Valuation: $100- 600million
Common Investors: VCs, late-stage VCs and now Softbank vision fund (SVF) which has created the famous SFV effect which we'll talk about later
