Home Entrepreneurs The fundraising stages are not about dollar values — they’re about risk • TechCrunch

The fundraising stages are not about dollar values — they’re about risk • TechCrunch

by Ozva Admin
The fundraising stages are not about dollar values — they’re about risk • TechCrunch

For a quick valuation increase, think: “What is the biggest risk right now and how do I eliminate it?”

you’ve probably heard from pre-seed, seed, Series A, Series B and so on. These labels are often not very useful because they are not clearly defined: we have seen very small Serie A rounds and huge previous rounds. The defining characteristic of each round is not so much how much money changes hands as how much risk there is in the venture.

In your startup journey, there are two dynamics at play at once. By deeply understanding them, and the connection between them, you’ll be able to better understand your fundraising journey and how to think about each part of your startup journey as it evolves and develops.

In general, broadly speaking, the financing rounds are usually the following:

  • The 4 Fs: Founders, Friends, Family, Fools: This is the first money coming into the company, usually enough to start testing some of the core business or technology dynamics. Here, the company is trying to build an MVP. In these rounds, you will often find angel investors of various degrees of sophistication.
  • Preseed: Confusingly, this is often the same as the above, except it’s done by an institutional investor (i.e., a family office or venture capital firm that focuses on early-stage companies). This is typically not a “priced round”: the company has no formal valuation, but the money raised is in a SAFE or convertible note. At this stage, businesses are generally not generating revenue yet.
  • Seed: Typically these are institutional investors investing large amounts of money in a company that has started to demonstrate some of its dynamics. The startup will have some aspect of their business running and may have some test customers, a beta product, a concierge MVP, etc. You won’t have a growth engine (in other words, you won’t yet have a way to attract and retain customers). The company is working on the active development of products and seeking the adaptation of the product to the market. Sometimes this round is priced (meaning investors trade a valuation of the company), or it may be priceless.
  • A series: This is the first “growth round” that a company proposes. Typically, you’ll have a product on the market that delivers value to customers, and you’re on your way to having a reliable and predictable way to spend money on customer acquisition. The company may be about to enter new markets, expand its product offering, or seek a new customer segment. A Series A round is almost always “priced,” giving the company a formal valuation.
  • Series B and beyond: In Serie B, a company usually goes to the races seriously. You have customers, income, and one or two stable products. From Series B onwards, you have Series C, D, E, etc. The rounds and the company get bigger. The final rounds generally prepare a company to go into the black (be profitable), go public through an initial public offering, or both.

For each of the rounds, a company becomes more and more valuable, in part because it gets an increasingly mature product and more revenue as it discovers its growth mechanics and business model. Along the way, the company also evolves in another way: the risk decreases.

That final piece is crucial in how you think about your fundraising journey. Your risk does not decrease as your company becomes more valuable. The company becomes more valuable as its risk is reduced. You can use this to your advantage by designing your fundraising rounds to explicitly de-risk the “scarier” things in your company.

Let’s take a closer look at where risk appears in a startup, and what you as a founder can do to eliminate as much risk as possible at every stage of your company’s existence.

Where is the risk in your company?

Risk comes in many shapes and forms. When your company is in the idea stage, you may meet with some co-founders who have a great fit in the founder market. You have identified that there is a problem in the market. All of your early interviews with potential customers agree that this is a problem worth solving and that someone, in theory, is willing to pay money to solve this problem. The first question is: Is it possible to solve this problem?

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