Rounds of funding: An overview

In our last post we looked at 6 ways to raise funding for your startup and when to use each . In the startup world, startup funding is categorized into rounds.

1. Pre-seed funding

This is generally funding received to aid the Company get started. The sources that may be categorised here include funds from; family and friends, bootstrapping, a few angel investors as well as a little percentage of funds from crowd funding.

Under this round of funding;

• You may be required to pitch your idea (formally) to your potentially investors.

• Your investors may fund you depending on the strength of your idea, as well as the strength of your team. (In a different post, we'll have a deep dive into the why's and why not's of a co-founder).

• At this stage, revenue may be zero or quite marginal.

• The startup at this stage is high risk, but may have a high potential for reward/payoff to the investors.

2. Seed funding

For a startup, this may be its first official round of funding, and may mainly come from angel investors. A number of startups have turned to crowd funding to aid them raise seed funding.

Under this round of funding;

• You may be required to pitch your idea (formally) to your potentially investors.

• Typically, the funds raised through this round are used for market and product development and enhancement or commencement of operations.

• The startup has substantial revenue tied to it and there exists a significant customer adoption of its products.

• The investment is still high risk.

With seed funding, some investors may conduct a due diligence on your operations. It will be best to be well prepared for these. Have your financials in order, your forecasts, have a strategy for growth (basically, your business model needs to have started taking shape). These funds do not come easy. Find a way of ensuring that your company is not left out.

3. Series funding

Remember what we called the venture capitalists in our previous post? This is where they come in. Under this round, funds are received in various series, i.e. Series A (to my football lovers not serie a), Series B, C, D etc.

These rounds typically require a business to have a Minimum Viable Product (MVP), i.e. a product that satisfies its customers and has generated enough feedback to enable further development.

A series funding round is pretty deep and has many variables. In our funding segment, we will look at breaking this down piecemeal.

If you did not get a chance to read the previous post, you can find it here.