#8 from 10 – The FREE course for raising capital from VC firms and angel investors

What are the stages of funding?

In order to have a full understanding of how funding can be obtained and where you are in this equation you need to know a few things about the five key stages of investments. Most ventures will get many rounds of investments and you should consider this when your are negotiating terms for an early stage funding.

The first stage is the pre-seed funding and this is the initial capital a venture gathers either from private funds or from family and friends. This is the starting round and it amounts a maximum of $100000. Some companies may skip this round. The next round is the seed funding and it is valued up to $500000. This is an investment round which is usually made by an angel investors or by debt capital (a loan).

The early-stage investment can be done in two series (Series A and Series B). The first round of capital is the Series A round and it is valued between $2 million and $6 million and Series B funding can amount up to $20 million. These rounds of investment are obtained usually after the company has proved it can grow and create revenue. At this stage, only venture capital firms or corporate investors will be interested in your venture.

For a company to get the Series B funding it must demonstrate that the market has accepted the venture and the products or service so the job is not done after you get the first funding series. Actually, every time you get funded you next task is to determine how to get more funding and grow your business even more.

Later stage investment (Series C, D, etc.) is made in multiple rounds and the value can exceed $20 million. This is the stage where companies, which proved a high level of success or have reached the financial “break-even” point, are included. If you own such a company, you may want to expand further and need a big amount of capital.

Mezzanine Financing is the capital provided to a successful company just before the IPO. This is an investment, which implies less risk, and the investor will usually cash out quickly. Private equity firms provide this type of funding usually.

Figuring out in what stage your company fits in is critical as venture capital firms may only invest in companies from a specific stage. Getting a good database is hard and time consuming if you do it by yourself. Even after getting a database like VCReporter with over 4600 well-picked angel investors and venture capital firms you will have to know how much money you need, customize the database by the stage of investment each venture capital firm prefers and choose the right one.

Getting funded can be a long and painful process if you do not go to the right investor. More about this in the next newsletter.