Funding Rounds Explained
Overview
This article explains the different types of funding you typically come across, and what they mean for the businesses.
Types of Funding
Within 's Intel centre, you'll find highly valuable information about the companies that have recently taken funding, including the type of funding and how much they've raised. In many cases, companies will take funding in order to continue their growth, which regularly comes in the form of hiring!
This is compounded by the fact that we know they have budget, and in many cases have lower barriers to entry as they are smaller organisations (the recruitment dream). Many of our clients have had great success using this tool and have brought on new accounts that are providing them with multiple roles.
Below is some key information about the major types of funding you typically come across that a company can take, and what it means for the business in practice.
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Pre-Seed/Angel Funding
Build relationships with founders from the start of their journey.
- Pre-seed/Angel funding is the earliest stage of funding.
- Founders are developing a prototype or proof-of-concept.
- Founders are working with a very small team.
- Typically the investment comes from one investor, or potentially even friends or family who are looking to support the business idea.
- Chances are that the investment will be to support the business, because it probably won’t be generating a big enough cash flow to cover all the day-to-day running costs yet.
Seed Funding
Build relationships with founders from the start of their journey.
- Funding may be raised from family and friends, angel investors, or incubators and venture capital firms that focus on early-stage startups. Angel investors are the most common type of investor at this stage.
- Some startups decide that they’re not interested in raising more money — that the level they reach with seed money is good enough, or that they’re able to grow more without more investment — and choose to stop raising funding rounds at this point.
- This is the end point for many startups. If they can’t gain traction before the money runs out they’ll fold.
- The typical valuation for a company raising a seed round is between £3 million and £6 million.
Series A
Build relationships with founders as they develop their business model.
- Series A rounds (and all subsequent rounds) are usually led by one investor, who anchors the round.
- Series A funding usually comes from venture capital firms, although angel investors may also be involved. Additionally, more companies are using equity crowdfunding for their Series A.
- Startups are expected to have a plan for developing a business model, even if they haven’t proven it yet.
- The typical valuation for a company raising a series A round is £10 million to £15 million.
Series B
Help build their teams of talented individuals.
- Series B funding usually comes from venture capital firms, often the same investors who led the previous round.
- A startup that reaches the point where they’re ready to raise a Series B round has already found their product/market fit and needs help expanding.
- The expansion that occurs after a Series B round is raised includes not only gaining more customers, but also growing the team.
- This will call for the recruitment of talented individuals to help with their strategies, and more investments will be focused towards the wage bill of skilled staff.
- The typical valuation for a company raising a Series B round is between £30 million and £60 million.
Series C
Support startups to land and expand their teams.
Tip: Look at Series C Funding in other countries to identify companies who might look at landing and expanding near you!
- Series C funding typically comes from venture capital firms that invest in late-stage startups, private equity firms, banks, and even hedge funds.
- Commonly, Series C companies are looking to take their product out of their home country and reach an international market.
- They may also be looking to increase their valuation before going for an Initial Public Offering (IPO) or an acquisition.
- Series C is often the last round that a company raises.
- Valuation of Series C companies often falls between £100 million and £120 million, although it’s possible for companies to be worth much more, especially with the recent explosion of “unicorn” startups.
Series D
Support startups to land and expand their teams.
Tip: Look at Series D Funding in other countries to identify companies who might look at landing and expanding near you!
Many companies finish raising money with their Series C. However, there are a few reasons a company may choose to raise a Series D:
Positive Reasons
- They’ve discovered a new opportunity for expansion before going for an IPO.
- To increase their value before going public.
- To stay private for longer than used to be common.
Negative Reasons
- The company hasn’t hit the expectations laid out after raising their Series C round.
Series E or Later
Support startups to land and expand their teams.
Tip: Look at these types of funding in other countries to identify companies who might look at landing and expanding near you!
If few companies make it to Series D, even fewer make it to a Series E or above. Companies that reach this point may be raising for many of the reasons listed in their previous series round: They’ve failed to meet expectations; they want to stay private longer, or they need a little more help before going public.
Venture Round
Support startups to land and expand their teams.
- Venture funding refers to an investment that comes from a venture capital firm and describes similar levels to Series A, Series B, and later rounds.
- This funding type is used for any funding round that is clearly a venture round but where the series has not been specified.
Private Equity
Growing established companies to challenge market leaders.
- A private equity round is led by a private equity firm or a hedge fund and is a late stage round.
- It is a less risky investment because the company is more firmly established, and the rounds are typically upwards of $50M.
- With a high cash injection, companies become under pressure to meet growth plans and return on the investment made - which usually means they need to hire!
Debt Financing
Replenishing lost money to ensure stability.
In a debt round, an investor lends money to a company, and the company promises to repay the debt with added interest. Quite simply, they're given cash to turn their business around, and quickly!
Grant
Growing established companies without joining the company board.
A grant is when a company, investor, or government agency provides capital to a company without taking an equity stake in the company.
Convertible Note
A convertible note is a type of debt instrument.
A convertible note allows the investor to provide funding to the startup without needing to value the startup immediately. It is different from typical debt instruments as it is a hybrid of debt and equity. This note can be converted into equity at the investor's discretion.
Corporate Round
Form of startup financing that is directed toward larger, more established startups.
Corporate round financing is often used in the growth stage of development and provides more capital than an angel investor. It involves venture capitalists (VCs) and multi-national corporations working together to provide capital.
Equity Crowdfunding
Allows companies to raise capital from investors through a crowdfund platform or website.
Equity crowdfunding is a type of startup financing where individual investors are able to purchase equity in the company. Investors can purchase shares for as little as $1 and it can be a great way to raise capital relatively quickly and in smaller amounts.
Initial Coin Offering
Type of fundraising through a digital token sale.
Investors can receive returns on their investment either through an increase in the token’s value or, in certain cases, dividends in the form of digital tokens. This type of startup financing has gained a lot of attention in the last few years.
Non Equity Assistance
Startup financing where the investor provides capital without taking an ownership stake in the company.
Non equity assistance is often done through loans and grants, which can provide the startup with the much-needed capital to get off the ground. Non equity financing can also come from angel investors, who may provide seed capital.
Product Crowdfunding
Startup financing where companies crowdfund for a product that the company wants to launch.
Investors can provide the capital to manufacture and launch the product in exchange for rewards or discounts, rather than receiving an equity stake. It’s a great way for startups to fund new products and get them to market with the help of their customers.
Secondary Market
Startup financing that involves the buying and selling of shares of stocks in private companies.
This is a way for investors to buy shares in a company that went public, without having to wait for the IPO. The secondary market can provide liquidity to investors who may be interested in investing in a startup without having to wait for its IPO.
Funding Round
“Funding round” is the general term used for a round when information regarding a more specific designation of the funding type is unavailable.