Professor Raiton’s Inside Perspectives: Entrepreneurship, Creativity, Innovation

From Get Ventures by Mark Peter Davis 

Typically a company raises numerous rounds of capital through its lifetime. While there are not rigid rules about the fundraising stages, I have attempted to characterize these stages below. Note that these stages reflect the IT space and can differ greatly in other sectors.

Friends and Family: F&F capital is the starting point of the company that is often used for basic administrative details including corporate formation, market research and the creation of a business plan.

• Typical Round Size: F&F rounds can be as small as $5K and as large as $100K.
• Investment Structure: Convertible note or common stock.
• Hurdle For Next Stage: Business plan; management team.

Seed: Seed investments are typically provided to companies that have a business plan and a management team, but do not have a product. At this point, companies are raising money based upon an idea and a team.

• Typical Round Size: These are typically $100-500K but can be as large as $1M.
• Investment Structure: Convertible note or common stock.
• Hurdle For Next Stage: Product.

Series A: The word “Series” implies institutional money (money invested by a VC). The letter “A” means that it is the first institutional round. By the series A most companies have a product that is ready (or close to ready) to take to market.

• Typical Round Size: These are typically $2-5M but can be as little as $1M and as large as $10M.
• Investment Structure: Participating preferred stock.
• Hurdle For Next Stage: Market adoption.

Series B: Typically in order to raise a Series B the company needs to have demonstrated market traction, further developed the business and recruited a more robust management team.

• Typical Round Size: These are typically $5-10M but can be as little as $5M and as large as $20M.
• Investment Structure: Participating preferred stock.
• Hurdle For Next Stage: Growth.

Series B and beyond: After the Series B round the required achievements more frequently vary by company. Some companies are nowhere near profitability and need more capital to stay alive and others are profitable but need capital in order to accelerate growth.