What is a funding round?
Raising money from investors is generally referred to as "raising a funding round."
Two of the most important considerations for raising a funding round are the amount of money you are raising ("the ask") and how much your startup is worth ("the valuation").
How do multiple funding rounds work?
A typical startup might raise multiple "rounds" of funding. Ideally, with each new funding round your startup will have grown in scale and traction to justify raising more money, at a higher valuation (meaning you give away less equity).
What different types of funding rounds are there?
We've put together a handy guide below to explain the different types of funding rounds (in sequential order):
|Pre-seed funding is used to start a company or get operations off the ground. Pre-seed funding is typically very modest.
Pre-seed rounds can also sometimes be referred to as a "friends and family round," since friends, family or the founders themselves tend to be the primary source of pre-seed funding.
In more recent years, some VC funds and investors have started investing at pre-seed stage, primarily as a way to acquire shares in a startup affordably.
Seed rounds are the first 'official' stage of equity funding for startups and early stage businesses.
In the UK, a typical seed stage funding round averages £500,000, ranging from £150,000 - £1,000,000.
Series A funding rounds are usually run by businesses that have demonstrable traction in the market (revenue, positive unit economics, a growing user base, clearer product/market fit etc).
An investor in a Series A round would typically expect their money to be used to deliver scale and potentially further optimise your product.
This would mean using funding for: customer acquisition; team growth; geographic expansion; product growth, etc.
Investors in Series A rounds are typically institutional investors, like VC funds, but can also include family offices, syndicates or high net worth individuals. Some VC funds in the UK have minimum requirements such as £1m in revenue, before they would consider making a Series A investment.
In the UK, a Series A funding round might range from about £1m - £10m+.
Series B funding rounds are for businesses that have a clear product/market fit, a product that is heavily in demand and requires additional capital from investors to meet that demand.
Investors in Series B tend to be 'institutional investors' like VC funds, investment banks and private equity funds.
In the UK, a Series B funding round could range from £10m - £30m or more.
Sources: Investopedia; HMRC