Venture capital is a source of financing for startups and companies that aim to do something new and innovative, or for companies that grow at a very fast rate. A great example would be a company like Airbnb or Uber at their earlier stages.
Most venture capital firms invest in companies based on several factors, such as the industry, the stage of the company, and the location. Startups fundraise in “rounds” based on what stage of the company they’re in, and what they’re trying to achieve with the funding.
In 2018, women only got 2.2% of venture capital funding. It’s time to change that!
A pre-seed funding round is around $50,000-$200,000, although it varies depending on where you’re geographically located. A company raising a pre-seed is often pre-product, and the funding is used to get operations off the ground. This money is used to begin product development, or develop a prototype to determine if the idea is worth further pursuit. However, this round is commonly bootstrapped (self-funded).
When you’re fundraising for this round, it’s best to focus on selling the idea and the founders, as there’s not a lot of numbers to base an investment off of at this point. Types of investors interested at this stage include friends & family, startup accelerators, angel investors (high net worth individuals who invest in startups), and smaller early-stage venture capital firms.
A seed round can often substitute a pre-seed round entirely, as the average funding amount varies from $100,000-$2M. A seed round funds product development, and sometimes helps jumpstart early revenue generation. By the time a company is fundraising a seed round, there’s generally some traction and strong signs of product market fit. Common investors for this round consist of early-stage venture capital firms and angel investors.
The average funding amount for a Series A round is between $2-10M, and the company is generally valued between $10-15M. In this stage, the company has evidence of product market fit in the form of sales and revenue growth, which is what the funding is aiming to grow. Developing sales and marketing processes are incredibly important at this stage, as the product already has some traction with customers. Investors in this round are generally venture capital firms, although on occasion a “super” angel will invest as well.
A Series B round is around $10-50M, with a company valuation between $30-60M. Since this is a later stage round, late-stage venture capital firms will invest. The startup should be focusing on scaling with product market fit and focusing on key metrics and financial projections. Funding is commonly used to hire more employees, expand into new markets or to experiment with different revenue streams.
Few companies make it to Series C and beyond. A Series C+ investment is generally over $50M, with a company’s valuation in the $100M+ range. By this point in a company’s journey, the risk has been minimized enough for not only late-stage venture capital firms to invest, but private equity firms, hedge funds, and even banks through their hat into the ring.
This investment generally fuels large scale expansion, such as expanding into international markets; additionally, it sometimes it fuels acquisitions of other companies.
It’s important to keep in mind that not all startups go through each round of funding, some are skipped. Some don’t fundraise at all, as there are several other methods of funding a company or startup, such as bootstrapping (self-funding), crowdfunding, and more.
And yes, I know some of these numbers look incredibly large and far fetched to reach. But remember, it’s up to women like you to change the 2.2% of venture capital that goes to women. Don’t be afraid to dream bigger and do more. You reading this article was your first step, I hope to see you take your next one 🙂
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