You’ve probably seen lots of articles about X company raising Y amount of money in some kind of funding round or another. But what do the different types of funding rounds mean?
Well, a funding round is anytime money is raised from one or more investors for a business. They’re given a letter, such as A Round, B Round, C Round, etc. because each round follows another. The letter identifies which number of rounds they’re on. For example, ‘C Round’ would mean the third round of funding a company has had. The type of funding round will also depend on the type of shares are being offered, such as ordinary or preferred shares.
Let’s take a closer look at the types of rounds and what they mean but note that thanks to equity crowdfunding, anyone can invest alongside angels and venture capitalists (VCs) at each stage…
Pre-Seed/Angel Funding 💰
- Pre-seed/Angel funding is the earliest stage of funding
- Founders are developing a prototype or proof-of-concept
- Typically the investment comes from one investor, or potentially even friends/family who are looking to support the business idea
- Chances are that the investment will be to support the business because it probably won’t be generating a big enough cash flow to cover all the day-to-day running costs yet
Seed Funding 💰
- Funding might be raised from family and friends, angel investors, or incubators and venture capital firms that focus on early-stage startups – Angel investors are the most common type of investor at this stage.
- Some startups decide that they’re not interested in raising more money as the level they reach with seed money is good enough or that they’re able to grow more without more investment — and choose to stop raising funding rounds at this point.
- This is the end-point for many startups. If they can’t gain traction before the money runs out they’ll fold.
The average valuation for a company raising a Seed round is between 15 million AED and 30 million AED.
Series A 💰
- Series A rounds (and all subsequent rounds) are usually led by one investor, who anchors the round.
- Series A funding usually comes from venture capital firms, although angel investors may also be involved. Additionally, more companies are using equity crowdfunding for their Series A.
- Startups are expected to have a plan for developing a business model, even if they haven’t proven it yet.
The average valuation for a company raising a Series A round is between 50 million AED to 65 million AED
Series B 💰
- Series B funding usually comes from venture capital firms, often the same investors who led the previous round.
- A startup that reaches the point where they’re ready to raise a Series B round has already found their product/market fit and needs help expanding.
- The expansion that occurs after a Series B round is raised includes not only gaining more customers but also growing the team
- This will call for the recruitment of talented individuals to help with their strategies, and more investments will be focussed on the wage bill of skilled staff.
The average valuation for a company raising a Series B round is between 150 million and 300 million AED
Series C 💰
- Series C funding typically comes from venture capital firms that invest in late-stage startups, private equity firms, banks, and even hedge funds.
- Commonly, Series C companies are looking to take their product out of their home country and reach an international market.
- They may also be looking to increase their valuation before going for an Initial Public Offering (IPO) or an acquisition.
- Series C is often the last round that a company raises
Valuation of Series C companies often falls between 500 million AED and 700 million AED, although it’s possible for companies to be worth much more, especially with the recent explosion of “unicorn” startups.
Series D 💰
Many companies finish raising money with their Series C. However, there are a few reasons a company may choose to raise a Series D.
Positive Reasons 👍🏼
- They’ve discovered a new opportunity for expansion before going for an IPO
- To increase their value before going public
- To stay private for longer than used to be common
Negative Reasons 👎🏼
- The company hasn’t hit the expectations laid out after raising their Series C round
Series E or later💰
If few companies make it to Series D, even fewer make it to a Series E or above. Companies that reach this point may be raising for many of the reasons listed in their previous series round: They’ve failed to meet expectations; they want to stay private longer; or they need a little more help before going public.
Support start-ups to land and expand their teams.
- Venture funding refers to an investment that comes from a venture capital firm and describes similar levels to Series A, Series B, and later rounds.
- This funding type is used for any funding round that is clearly a venture round but where the series has not been specified.
Growing established companies to challenge market leaders.
- A private equity round is led by a private equity firm or a hedge fund and is a late stage round.
- It is a less risky investment because the company is more firmly established, and the rounds are typically upwards of $50M.
- With a high cash injection, companies become under pressure to meet growth plans and return on the investment made – which usually means they need to hire!
Replenishing lost money to ensure stability.
In a debt round, an investor lends money to a company, and the company promises to repay the debt with added interest. Quite simply, they’re given cash to turn their business around, and quickly!
Growing established companies without joining the company board.
A grant is when a company, investor, or government agency provides capital to a company without taking an equity stake in the company.
Did you know – Over 60% of all startups need external investments.