Understanding Startup Funding Rounds: Series A, B, C, To Infinity
Cash flow is the lifeblood of any business enterprise
Business financing is a never-ending requirement that must be fulfilled throughout the lifecycle of a private company. Businesses may require considerable finance at certain periods for growth, acquisition, or expansion, starting with capital to commence operations. The majority of founders start their businesses with personal savings, donations from friends and family, and bank loans.
Welcome to the world of startup funding rounds.
Funding can be difficult in the early stages of a business when there is little revenue coming in from the market. As a result, many startup entrepreneurs seek money from angel investors and venture capitalists during critical stages of their company’s development. Fundraising from private equity/venture capitalists may be categorised into seed funding rounds/investment series.
In this article, we take a look at the different rounds of fundraising most startups go through and break down what investors generally expect at each stage. We also take a look at some of the common differences between traditional startup fundraising and crypto startup fundraising.
SEED FUNDING: First plant a seed 🌱
If you want something to grow, you must first plant the seeds to do so: a perfect analogy for the first rounds of startup fundraising.
- Pre-seed rounds are usually the first rounds of fundraising for a startup. Pre-seed investors are usually the founders themselves, friends and family, and potentially Angel investors. Pre-seed rounds are among the riskiest because they take place in the very first moments of a startup’s life. You might still be developing your product, building a team or even researching during the pre-seed round. But with great risk comes great reward: pre-seed investments often give large equity stakes or, in the world of crypto, the best possible token price.
Following the pre-seed is the seed round.
- Seed rounds are usually when early VC investors begin to take an interest in a project. By this point you might already have a prototype, reputable advisors and some solid partnerships — but not necessarily. The point is that at a seed round, your project has enough traction to begin attracting the attention of VCs or Private Equity firms.
Like pre-seed rounds, seed rounds generally give some of the best exposure to young startups in terms of expected returns.
A dollar is worth a lot more at seed than it is at public.
Portfolio Valuation for Investment Bid
During a seed round, a traditional startup can expect an evaluation of between $2 million and $20 million. Investments at this stage usually raise anywhere from $10,000 to $2 million, although it can sometimes be higher — African startup Dash recently raised an incredible $32.8 million in their seed round.
NEXT LEVEL: Series A to infinity ✨
After a seed round, most traditional startups are ready to begin deploying their product to the market. After operating for a while and establishing consistent revenues, they may decide to raise extra capital to expand their operations. If they go down this path, a Series A raise is the first step they take.
🚀Series A fundraising usually occurs after a project has demonstrated its viability, and as a result, these raises can be quite large. In the US in 2022, the average Series A raise was $21.5 million. Here investors are vying for a much smaller piece of the pie than with pre-seed and seed rounds. Expected returns are much lower because they’re entering the business at a later date, but are at the same time taking on less risk because the project is already somewhat established.
🚀After Series A, if a project wants to raise even more capital, they can opt for a Series B raise. In 2020, the average Series B raise sat at $33 million — a strong indication that if you’re at the point where you’re considering a Series B raise, you must be doing something right.
There are no prizes for guessing what comes after Series B. Series C raises take valuations even higher, and look to fundraise even larger amounts than Series B. It’s interesting to note that Series C raises are relatively uncommon, particularly in Africa. Just 8% of African startups make it past Series B, although making it to Series C is a strong indicator of prosperity to come. Six of the eight African unicorns (startups valued over $1 billion) achieved their unicorn status during or after their Series C raises.
If you’re at the point where you’re considering a Series D, E, F or G raise, you’ll likely be making fundraising decisions from your private yacht. Startups that have established themselves in the big leagues typically use these late-stage raises to explore new markets and new business areas, and can often reach into the billions of dollars.
Goodluck on your quest!
Traditional vs. crypto fundraising
While there are many similarities between crypto and traditional startups in terms of the way fundraising occurs, there are some important differences to keep in mind.
First, traditional startups usually fundraise through authorized investors. These could be VCs, funds or even wealthy individuals, all with certain qualifications behind their portfolios. Crypto instead democratizes investing by giving regular individuals access to early rounds, often with much smaller investment amounts. Rather than requiring minimum investments of $10,000 or more even in seed rounds, smaller crypto startups can seek investments as small as a few thousand dollars.
Another key difference is what investors get out of their investments. Traditional fundraising is normally in exchange for equity or debt, while crypto fundraising earns investors project tokens. This is more akin to when a company lists on a public stock exchange — early investors either get distributed shares or get preferred access to them before the public does.
Crypto distributions work in much the same way. Pre-seed and seed investors get access to tokens at prices much lower than the public will, and rather than raising additional funds through a Series A, projects generally sell tokens through Private rounds at a preferred price. Between Seed and Public there might be several different rounds — Strategic, Private A, Private B, etc. — each with fundraising milestones. While different projects might call these different things, one thing is for sure: earlier rounds offer tokens at lower prices, while later rounds become progressively more expensive.
Surviving the raise 💪
Fundraising is much more than getting money in the bank account — startups need to know how to manage their cash flow so that it’s sustainable and ensure that their fundraising goals align with the state of their startups. At Adaverse, we specialize in preparing African startups for the market by helping develop strong fundraising plans. Together, we work to make sure you don’t just raise capital, but that you raise capital the right way.
Begin with Adaverse
If you need funds to build your business, get in touch with Adaverse today. We are set up to advance African startups with funding during pre-seed and seed funding rounds. We do not only invest funds, we also provide mentorship and technical support for companies that will harness the tools on Cardano’s environmentally sustainable blockchain.
Check out our most recent investment in a Nigerian DeFi-focused startup — Canza Finance.
Adaverse is open to applications from founders all year round. Apply Here
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