Before you begin investing, contemplate how much capital you need, the reason for that money, and the expected return. Advise yourself not to go into any plans that entail raising money.
Preparing to seek equity funding means selling shares of your company to increase business revenue. However, many successful corporations in the United States were initially established with a minimal amount of funding or grew through traditional debt financing.
If you are going to have to sell equity, the article provides the guidance you may need.
The Guide to Series Funding Rounds
There are several stages or rounds that a company may require capital injection, with each funding round having a designated identity. Some of the financing rounds may include;
- Pre-Seed Funding.
- Seed funding or angel round.
- “A” round or Series A financing.
- “B” round or Series B financing.
- “C” round or Series C financing.
Seed funding or Angel round
Seed capital is the first capital of outside capital injection into the business. This is the official first round of equity financing. It is typical for angel investors to take greater risks by offering small amounts usually around $1 million prior to this.
Seed funding is an essential initial stage toward the process, through which a prototype can be turned into an actual concept capable of generating revenue for the startup.
Pre-Seed Funding
Pre-seed capital is the earliest sort of funding used to support the founding of a new company. It’s often not allotted among the stages of a business’ funding cycle until later on in the process. It’s sometimes referred to as “ghost” capital.
The most common “pre-seed” funders are the founders themselves, in addition to close friends, supporters, and family. Depending on the nature of the business and its certain expenses, “pre-seed” funding may take place fairly quickly or may take quite a while before completion.
Investors at this stage are not generally making investments in exchange for equity in the company.
Seed Funding
The first equity funding stage is referred to as seed funding. It’s often referred to as the first money that a business enterprise or a venture accepts. Some businesses never go further than this funding round into Series A rounds and beyond.
A similar idea can be used when referring to seed funding: it can be viewed as the act of planting, and so forth.
This early financial support is ideally the “seed” which will help to grow the business. Given enough revenue and a successful business strategy, as well as the perseverance and dedication of investors, the company will hopefully eventually grow into a “tree.”
High net worth and wealthy individuals, referred to as angel investors, who are likely retired executives or business owners, typically offer seed investment. When wealthy people sent money to Broadway theatres in the past to support theatrical shows, the phrase “angel investor” was first used.
What is a Series A funding round?
Once a company has established a track record (an established user base, consistent revenue figures, or some other key performance indicator), it may choose Series A funding to further optimize its user base and product offerings.
There may be opportunities to scale the product across different markets. It is critical to have a plan in place for developing a business model that will generate long-term profit during this round.
Often, seed startups have great ideas that generate a large number of enthusiastic users, but the company has no idea how to monetize the business.
What is Series B funding round?
At this point, the company is thought to have moved past the start-up or development stage, and extra money is intended to help the company grow. Companies that have undergone seed and Series A fundraising rounds often have already attained a sizable market share, have met targets established by investors, and are prepared for succession at a higher level.
Here, the B series stands for “build.” It entails the pursuit of funds in order to develop a potent marketing strategy, draw in more qualified personnel, build a strong customer support system, and buy the newest technology. At this point, the company is highly regarded and might draw investments worth up to $10 million and more. To break even is the objective of finance here.
Prior to investment, the company is valued based on its performance in comparison to its rivals and the industry as a whole, its revenue outlook, and its assets. The second round of equity financing, known as Series B funding, may come through credit investments, crowd fundraising, venture capitalists, or private equity investors.
What is Series C funding round?
Businesses that advance to Series C investment rounds have already achieved considerable success. These businesses seek out additional money to aid in the creation of new products, market expansion, and even company acquisition. In Series C rounds, investors put money into the core of profitable companies in an effort to get back more than twice as much. Scaling the business and achieving the best possible growth are the main goals of the Series C fundraising.
Buying another firm might be one strategy for a corporation to grow. Consider a fictitious business that aims to produce meat-free alternatives.
Businesses that make it to Series C funding sessions are already quite successful. These companies seek additional funding to help them develop new products, expand into new markets, or even acquire other companies.
In Series C rounds, investors inject capital into the meat of successful businesses in the hopes of receiving more than double that amount back.
Series C funding is aimed at scaling the company and allowing it to grow as quickly and successfully as possible.
Acquiring another company could be one way to scale a company. Consider a hypothetical startup that focuses on developing vegetarian alternatives to meat products.
11 Factors to landing a Series Round Funding
Have a Plan
Businesses that make it to Series C funding sessions are already quite successful. These companies seek additional funding to help them develop new products, expand into new markets, or even acquire other companies.
In Series C rounds, investors inject capital into the meat of successful businesses in the hopes of receiving more than double that amount back. Series C funding is aimed at scaling the company and allowing it to grow as quickly and successfully as possible.
Acquiring another company could be one way to scale a company. Consider a hypothetical startup that focuses on developing vegetarian alternatives to meat products.
Research
Collect as much information as possible about which funds are investing in your industry and why. Many funds have mandates for what stage of a company they can invest in, as well as a thesis for a specific space (a fancy way to say they see a trend that is their focus area for investment).
Farmer’s Fridge, for example, is part consumer packaged goods, part quick-service restaurant, and part data-technology company. We sought out partners who invested in each of our focus areas and assembled a truly representative, well-rounded group—Danone, Cleveland Avenue, and Innovation Endeavours each bring domain expertise in their respective functions.
Connect
Reach out to industry founders and angels, attend industry events, and ask for introductions. You should start meeting people who can help you expand your network and make introductions to the funds you’ve identified.
Ideally, another founder can introduce you to one of their investors with a credible endorsement of your company, or you can find an angel investor who has been successful in an adjacent space and is willing to invest.
When I was first trying to raise funds, I went to a food and agriculture conference and met the CEO of a vertical farm. He introduced me to one of his largest investors, who later became a shareholder in us.
Documentation
This is also known as “documenting the magic.” To back up your story, you’ll need a pitch deck, a financial model, and backup data. Begin by organizing your story into 15 to 25 slides that you can send out via email to pique people’s interest in meeting with you to learn more.
Once you’ve scheduled a meeting, you’ll need to prepare a presentation that describes your company and its growth strategy. Include a detailed financial model that explains how the business’s finances should behave over the course of an investment.
This allows investors to put your assumptions to the test and determine their potential return.
Pitch Practice
It’s critical to nail your pitch. Prepare to answer any and all questions about your company, and practice with friends and mentors. It is also acceptable for you to question the investors.
You should confirm with funds upfront that their check size, stage, and style are compatible with your stage and visions. You should feel comfortable asking questions about the life cycle of their current fund and other investments that may have an impact on you.
This saves time for both groups and demonstrates that you know what you’re doing.
Start your reach-out
Start getting introductions to funds or reaching out cold after you’ve made some connections, done your research, and prepared your materials. Consider this a sales process. You want the funnel to be as large as possible.
The more people you talk to, the better your chances of creating a competitive process are. Plan on reaching out to at least 50 people and don’t stop just because a few people express an interest.
This is a numbers game, and the more shots on goal you have, the better your chances of success.
Meetings with potential investors
Every pitch meeting is totally unique. The best advice I received came from a particular investor who insisted that we meet in the gym’s lobby during a break in his workout.
I assumed the invitation was for a spot near the gym when he emailed it, but when he showed up in his tank top and told me I had 30 minutes to pitch, we got started right there in the lobby. Imagine Shark Tank without the cameras or the final offer. Investors assess your ability to control the situation and gauge your level of expertise.
Be prepared. Utilize all the comments you receive to improve your pitch and story for the following one.
All you need is one (but two or more is best): Remember that it only takes one investor to set a term sheet, and then the process is usually downhill from there. Try to get at least two people, so you can have a competitive process.
Stay Focus
Remember that you are getting married to the investor. Seriously, many investment partnerships outlast the average marriage, so be sure you know who you’re partnering with.
If you receive a term sheet, don’t be afraid to request reference calls. You should also address expectations for things like meeting cadence, communication style, reporting, investment thesis, and so on up front to avoid problems later on.
Double Choice
Define what might result from taking the money you provide. You are going to do everything in your power to make money for your investors, so make sure you know what they are looking for, and make sure your company can deliver it.
Get Working
You realized that I was likely going to continue with this, correct? It’s simple to get swept up in the fundraising process and consider securing funding an end in itself, instead of as a means to an end. Raising funds is not a mark of success.
Raising money does not necessarily reflect success. The best ways to create long-term value are by operating a successful business, developing realistic goals and expectations that align with your finances, and securing sound capital via funding.
Promoting your balance sheet makes you more competitive for additional capital, but it takes time and diligent campaign planning before you can execute your ideas.
5 Drawbacks of Seed Funding Rounds
- Each investment venture and each equity transaction requires a corporation to take action, so the capability to vote is an important facet of company control.
- Sharing the profits generated as a result of a successful implementation of an individual concept with other investors in the form of dividends is a seed funding rounds key note.
- Acquiring a suitable investor and handling the paperwork can take a lot of time at times running to many months that may delay needed activities from proceeding.
- Not perfect for family-owned companies that are not prepared to give up equity to realize more investment capital.
- Conflict may arise when different shareholders have different vision and expectations for the company. As an example, Apple Inc.’s board of directors once fired its founder Steve Job due to a difference of opinion.
