Defining the stage of your financing round – Why does it matter?

You want to ensure that the deal is structured in a way that is most advantageous for you and your business.

Here, we highlight the most important characteristics of the different financing rounds, with a focus on the early-stage financing rounds.

 

Pre-Seed

Pre-Seed financing is a type of funding typical in the very early stages of a startup. It is usually required to validate the business idea, conduct market research, and potentially produce a first prototype of the product. Friends and family, as well as angel investors, are usual sources of funding at such an early stage.

1. Funding amounts: In pre-seed financing rounds, investments range from CHF 50-200k.

2. Risk: Pre-seed financing is considered high risk because the viability of the product or service has not been proven yet.

3. Type of financing: Pre-seed financing rounds often involve the issuance of convertible debt, which is a type of loan that can be converted into equity in the company later on, typically when the startup raises its next round of funding.

 

Seed

Seed rounds are often  the first round of financing for a startup,  from angel investors and venture capital funds that specialise in seed investments. This round of financing is typically used to get the business off the ground and to further develop or finalise the product or service.

1. Low capital requirement: Startups in the seed stage  have limited resources with which to develop their product or service.

2. Small team: Startups in the seed stage typically have small teams of founders and early employees.

3. Minimal Viable Product: Startups in the seed stage often have a MVP.

4. Limited customer base: Startups in the seed stage often have a limited customer base,  on a pilot basis.

5. Low revenue: Startups in the seed stage usually have low and  non-recurring revenue.

 

Series A

Series A rounds are the first official round of venture capital funding for a startup. This round of financing is used to expand the business and to begin the process of scaling the product or service.

1. Working Product: The startup usually has a working product, and the Series A round will be used to further expand the product.
2. Traction: The startup has achieved some measure of traction, such as a growing customer base or revenue.
3. Scalability: The company's operations and products must be able to scale in order to meet the requirements of a Series A round.

4. Recurring Revenues: Revenues in Seed stage can result from one-off projects, the revenue in Series A stage should preferably be on a somewhat recurring basis, if possible for the business model. . Numerous VCs have specific hurdles in terms of minimum of their ARR or MRR in order to fulfill the requirements. This threshold value is usually around CHF 1M ARR.

 

Series B

This round of financing is used to further the growth of the business and to accelerate the process of scaling the product or service.

 

Series C

The focus is growing the business and to continue the process of scaling the product and/or service.