A funding round is the process where companies, majorly startups seek to grow their business operations by raising external financing in exchange for equity. It is also referred to as Round Financing or Venture Round. According to Mark Suster, the single biggest mistake founders make is waiting until they have too little cash in the bank before they think of raising funds. Regardless of the nature or size of its activities, every company requires funding to turn its unique ideas into reality. Some firms fail because of their inability to raise adequate financing.

For successful capital raising processes, Startups must go through several funding rounds to prove that their proposal is worthy of investment, regardless of its set goals and hurdles. Each round is intended to acquire enough funds to allow the company to expand further, taking up to a year to complete in some cases, and involving a series of valuations across each round. These rounds allow external investors to put money into a growing firm in exchange for a portion of the company’s ownership.

The funding round involves seven (7) major series which can be seen as follows:

Pre-Seed Round

Pre-seed funding encompasses the prime stage of funding in a period where the founders give their idea the initial push in getting the operations off the ground. It is commonly referred to as bootstrapping which means using existing personal resources to scale the business. In this stage, the owners use their finances to grow their businesses in the most resourceful manner.

Seed/Angel Round

The Seed round occurs at the initial idea stage of a company, once the founder(s) has a prototype or a proof of concept with evidence of demand for the product/service being offered. This round typically includes a large percentage of funding sourced from friends family and Angel investors focused on early-stage companies.

Series A Round

The Series A round focuses majorly on startups that have a proven business model, and decent customer base, and already generating profits with consistent revenue. In this funding round, it is pertinent for the company to have a business plan/model that would yield long-term profits, as this is what investors are concerned about. It is recognized as the first major round of equity financing by Private Equity firms or Venture Capitalists.

Series B Round

The business is regarded to have past the development stage at this point, and to scale up, the extra investment is sought to propel the company forward. The B series entails obtaining funds to develop a solid marketing strategy, attract additional quality staff, improve customer service, and acquire cutting-edge technology. The company is also highly valued at this point and might attract large investments.

Series C Round

Companies that have reached this phase of financing often have a significant client base, revenue sources, and a track record of consistent growth. Businesses in this stage usually seek additional capital to help them produce new goods, enter new markets, or even buy other businesses. Investors put money into successful businesses in Series C rounds in the hopes of getting more than double their money back. Series C capital is focused on scaling the company on a national or international level, growing as fast and as profitably as practicable.

Series D Round

The Series D round could be more complex than the preceding rounds. Companies might choose to raise funds in a Series D round for the following reasons: they have discovered a new opportunity for expansion before going for an IPO but need another capital injection to get there, they want to increase their value before going public, companies could decide to stay private for a longer time than planned, and lastly, companies engage in Series D round when they are yet to hit their expectations stated during the Series C round (which is usually referred to as a down round). Series D rounds are usually funded by venture capital firms and private equity firms, with the amount raised and the value of the companies varying widely.

IPO Round

Going public is not entirely the aim of all Startups. This round of financing creates an opportunity and serves as a possibility for the company to expand further, having raised capital through each of the previous series. An Initial Public Offering (IPO) occurs when a startup decides to obtain capital from the general public, including institutional and individual investors, by selling its shares. The process would typically require the fulfilment of regulatory requirements with the SEC, the appointment of professional parties, and an audit of the company’s financial statements, amongst other conditions to be met. Basically, an IPO allows the company to expand and diversify its business operations.

Examples of Companies amongst others, that have raised capital in the different series of financing, as of the date of the publication of this article, include Kippa (raised $3.2 million in its Pre-seed round), Big Cabal (raised $2.3 million in its Seed round), Flutterwave (raised $250 million in its Series D round), DrugStoc (raised $4.4 million in its Series A round), Reliance Health (raised $40 million in its Series B round), and CredPal (raised $15 million in its Bridge round). The various funding rounds work in roughly the same way: investors provide cash in exchange for a share of the company’s stock with investors placing slightly different criteria between rounds. Series funding allows investors to provide entrepreneurs with the funds to actualize the development of their ideas, with the possibility of cashing out collectively later in an IPO.

Can MCL Help Your Startup Raise Funds?

Meristem Capital Limited can provide financial advisory services for startups on the most reasonable and appropriate offers through the various funding rounds, after assessing their business model, shareholding structure, prepared valuation models, and identifying appropriate investors/funders.