A startup cannot be set up without having a growth plan in mind. This plan must take into account multiple factors, but the most important question an entrepreneur must ask himself is: how am I going to finance my startup? The startup world is like the world of plants: not even the most brilliant idea can flourish without being watered. In this case, the watering is based on funding that will allow the idea to mature.
Driven by a constant hunger for growth, startups resort to multiple and varied rounds of financing. However, the money put up by the founders of a project to start it up is not the same as the IPO when the project has already become a reality. Depending on the financing round, we can determine which stage of growth a startup is at. These rounds are classified as follows:
- Preseed round: this round takes place when the project has not yet emerged from the entrepreneur’s head. At this stage, it is necessary to provide an initial sum of money to develop the product and the necessary means of production. The sources of financing are the three Fs (founders, family and friends), i.e. the money comes from close circles whose investment is based on a personal relationship of trust. In Spain, an average of less than €100,000 is raised in this round.
- Seed round: this stage usually takes place immediately after the pre-seed round, if not simultaneously. The startup is in the valley of death, a first period where losses are registered and the investment risk is high. However, access to funds is much easier than once the company has grown. At this stage, startups turn to accelerators, business angels or Equity Crowdfunding rounds, among others. The fundraising usually does not exceed €300,000.
- Series A round or early stage round: the startup already has enough customers and revenue to exceed the profitability threshold, and seeks funding to hire talent and optimize its product. For this purpose, it mainly turns to large business angels, venture capital firms and Equity Crowdfunding rounds, where funding is around one million euros.
- Series B round or growth round: it already has a solid customer base and metrics that allow it to set clear growth targets. For this purpose, it needs to raise a new round of funding. Once again, venture capital investors are usually approached, with the aim of raising financing of between three and 5,000,000 euros.
- Series C round or expansion round: at this stage, the product is already consolidated in the market. The startup, which is already a mature company, must expand to other markets or geographic locations if it wants to continue growing. To do so, it turns to hedge funds or banks, among others. The capital raised in these rounds is around 16 million euros. These rounds are sometimes replaced by IPO rounds, in which the company goes public.
- Subsequent rounds: while Series A, B and C are the most common, the constant desire for growth of startups can lead them to cover quite a few letters of the alphabet. Funding rounds tend to get bigger and bigger, and in many cases lead to the formation of unicorn companies, with a valuation of more than $1 billion.
As the famous quote goes: “‘the sky is the limit”. The most successful entrepreneurs have been characterized by their strong ambition and permanent hunger for growth. Fellow Funders supports ambitious entrepreneurs who need capital to grow their project, either by Equity Crowdfunding (through our Crowd Investment platform) or by joining alternative stock markets (through our Capital Markets program).