CapitalPitch Blog

Pre-Seed, Seed and Series A funding round means what exactly?

[fa icon="calendar"] 27/07/2016 4:58:50 PM / by CapitalPitch

When scaling up a high growth business there are a series of potential funding rounds required.

These are rounds that a business may go through to raise capital (money) from investors, which will help them grow and expand.  

Across most countries including America, United Kingdom, Australia and China, these stages are universally recognised and can be broken down into three broad categories. They are:

  1. Pre-Seed
  2. Seed
  3. Series A (B, C & D)

Each stage has it own challenges when it comes to raising capital. So it’s important for any founder to understand the different stages their startup may transition through.

Download e-book  Fundraising Ideas for  Seed and Series A Investment Rounds

Below is a table that we here at CapitalPitch have put together based on research and data we have collected across various market places. Please note that criteria can vary (often greatly!) from sources, so this is a guide only to help founders know where they should aim to be before raising a round of capital:

 

Pre-Seed

Seed

Series A

Revenue

$0

>$5K per month

>$100K per month

Product

No MVP

MVP / Beta

Early release

All systems go!

Customer/Revenue Growth

Customer Validation

or Pilot complete

Beginning

10% per month

for 6+ months

Cofounding Team

1-4 Cofounders

2-4 Cofounders full time

2-4 Cofounders full time

Exec Team

Founders

Founders + 1-5

Founders + 5-20

Board of Advisors

 1-2 industry credible advisors

3-6 Serial Entrepreneurs  and/or industry experts

6+ Serial Entrepreneurs, investors and/or industry experts

Board of Directors

None  1-2 cofounders  2 founders and 1 Serial Entrepreneur, Investor or Industry Captain

Runway (how long until you run out of cash)

 No funding yet but you should have personal cash flow 6-18 months   6-18 months

Scalability

 Future tech build Technology enabled  Technology Core 

IP (Intellectual Property)

 Not Owned Owned Protected

Raise Target Amount

$50k - $250k

$500k - $2m

$2m to $10m

Indicative Australian Valuation

$500k - $2m

$2m - $5m

$5m - $20m

 

Pre-Seed Definition:

A pre-Seed funding round is for early stage product development of a minimum viable product (MVP). Funding of a Startup at this level is to maximise its future fundraising opportunities through testing, having an effective core team and building beyond a prototype. Funding for Pre-Seed business normally comes from the 3F’s (Friends, Family and Fans!). The amount of money is usually relatively small because the business is still in the idea or conceptual stage.

Seed Definition:

Startups at this level have already validated their value proposition. They have monthly revenue which is consistent, constant and the business is growing month on month. The Startup needs its next level of funding to find true product/market fir, scale, grow and become a competitor in the current market place.

Series A Definition:

Series A financing tends to occur when the Startup is generating strong revenue from its business model, but rarely will the business be generating net profits at this point. Most series A investors will be venture capital funds or angel investors who are willing to accept the high levels of risk found in these early-stage company investments. This round is to scale a product/market fit nationally and potentially internationally.

Pre-Seed Structure:

So what does a Pre-Seed round look like? Below is an example of what you may encounter

  • In the $50k - $250k range
  • Light term sheet, convertible note, SAFE (Simple Agreement for Future Equity)
  • Pre-money valuation <$2m
  • Resulting cash burn to last 12-18 months

Seed Structure:

So what does a Seed round look like? Below is an example of what you may encounter

  • In the $500k - $2m range
  • Priced equity round, convertible note or SAFE  (Simple Agreement for Future Equity)
  • Pre-money valuation $2m - $5m
  • Resulting cash burn to last 12-18 months

Series A Structure:

So what does a pre-seed round look like? Below is an example of what you may encounter

  • In the $2m - $10m range
  • Priced equity round
  • Pre-money valuation in the $5m - $20m range
  • Resulting cash burn to last 18-36 months or see the startup to break even

 

 

Bonus:

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Topics: Startup, Fundraising, Entrepreneur, Equity, Family Office, Investment, Raise Capital, Investor, Venture Capital, Pitch to Investors, Valuation

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Written by CapitalPitch