The Different Funding Rounds for startups
In mid-2016 a British Business Bank report highlighted that more than 60% of startups were in need of funding at least once across their lifetime. Actually, this would be even more in 2021 due to the complexity of some technologies that cannot be created without funding. In 2016, BCG counted 2,800 DeepTech startups across the world. In 2021, they found almost 8,700 of them. It is therefore not without saying that funding is even more crucial for startups in these times.
Let’s then try to walk you within the different funding stages a company can be going throughout its lifetime.
🐣 Pre-seed: This one is basically the bootstrapping stage. The founding team raises funds with friends or family, what we call the “love money”, or with Business Angels (BA) they’ve been introduced to. Pre-seed stage is quite often a crash test time for the startup as the team uses this money to test the feasibility of the idea. In average, the fundraising doesn’t go up to $100K.
Soon, love money is no longer enough to further develop. Founders will then be reaching out to Venture Capital funds (VCs) to get more money in exchange of ownership.
🌱 Seed: Product development stage. The ticket goes from $100K to $3M. At this time, the product isn’t ready yet but easily passed the crash test. Its match with the market is now proven but some things must be done to improve it. Therefore, the money raised is mainly used for R&D. The startup receives money from BA, early-stage Venture Capital funds and sometimes via crowdfunding action as Respire did in late 2018.
📈 Series A: Market penetration stage. Actually, the startup started making revenues and is doing pretty well as the product fits the market. Now, the key is to gain market shares and settle as a clear leader of the niche. This is the favorite round for VCs as the product provides money to investors but the company can still experience a steady growth. Money raised goes in average from $1M to $30M. I would recommend you to take a look at Wingcopter that raised $22M in Series A round. This one is a pretty good example of a company trying to scale up after years of bootstrapping.
After Series, we could say that early-stage is over. Still, we shouldn’t be talking about startups anymore as the business model is clear, the company makes revenues and quickly scaled up. We are on track to reach the premier league.
🌎 Series B: Let’s get international. The company is looking for expansion as it has already scaled up and meets the customers’ demand. This round is generally ensured by late-stage VCs and this is basically a $15M to $60M round. The famous French FinTech Lydia recently raised $72M in extension of its Series B round (they had already raised $50M previously) to accelerate and break into other European countries’ market.
🦄 Series C: The unicorn quest round. The company tries to reach more markets and develop further products. The company is valued at more than $100M and is a clear leader of its niche/market. Money is raised from late-stage VCs, Private Equity firms, Hedge funds or banks. The funding range is $30M-$100M. Take a look at Quizlet that raised $30M at this stage, driven by the pandemic effect.
Sometimes, companies go through other stages until becoming public. Each stage corresponds to another specific milestone for the company which needs to close some other rounds to achieve them. These stages are Series D, Series E… no need to iterate that much, you got it.
Still, in order to quench your thirst for knowledge, I’m pleased to tell you that the biggest fundraising in history was carried out in Series C by Ant Financial, the parent company of Alipay which is Alibaba’s payment system. It culminates at $14B and took place in June 2018.
💲IPO: Basically the process of becoming public. This happens when shares of the company start to be traded on Stock Exchanges. Here, you and me are the potential investors. The fundraising goes from $50M to some billion dollars. As an example, in mid-December 2020, Airbnb went IPO and recovered $3.5B.
As a conclusion I would say that the main thing to have in mind when it comes to fundraising rounds is the process the company is going through when it raises money. The ticket depends widely on the market the company competes in. As you may have seen, the Series B ticket for a FinTech (Lydia) has been way bigger than the Series C ticket for an EdTech (Quizlet).
