Startup Investment Rounds
The objective of a startup is to find a solution that meets the demand of a market, to reach the product-market fit and then seek to accelerate its growth.
In order to grow, in addition to knowledge and hard work, it is essential to attract the attention of investors to promote growth actions, such as increasing the team, marketing and sales actions, and developing new technologies.
However, the need for capital to be invested by a Startup that has not yet clearly defined its business model is very different from one that is already consolidated. For each stage there are different names for the investments and obviously different magnitudes.
Pre-seed investment basically occurs when the Startup is taking its first steps and usually:
Has already created an MVP (Minimum Viable Product) that works properly
Has identified a possible market and how to reach it.
This type of investment is usually made by family, friends, other entrepreneurs or accelerators. As you can see, this type of investment is made by individuals, and the most famous group of investors of this type is called Angel Investors.
Angel Investors are individuals who invest their own capital into new companies with high growth potential. These investors also tend to assist with knowledge and experience, acting as board members with a minority stake in the company, but not as contracted executives.
To dilute the risks, this type of investment is usually carried out in groups. For the negotiation to be faster, one or two leading investors (Lead Investors) are defined, who carry out a pre-assessment of the project and negotiation with the entrepreneur prior to presentation to the other members of the group.
The Pre-Seed investment has an average value between US$50,000 and US$250,000.
Seed Investment is aimed at Startups that have already taken their first steps and that generally:
They have achieved a certain degree of Product-Market fit and, consequently, are starting to leverage their sales.
They formed a very qualified team to leverage the business.
This type of investment is usually carried out by investment funds, which capture investments from other investors and invest in several companies at an early stage in order to reduce risks.
The value of the Seed investment can range between US$500,000 and US$ 2 million.
Series A investments are aimed at startups that already have a consolidated business model and have already shown great growth potential. The values are generally intended for companies that aim to boost production, expand their presence in the market and even launch new products.
Investors are often Venture Capital Funds, which are not just looking for good ideas, but for good strategies to ensure the company is a success.
Series A investments are typically between US$2 million and US$15 million, but that number has grown due to the market value of tech companies and unicorns. In 2020, the average of Series A investments was equivalent to US$15.6 million.
Series B investments are sought by companies with a well-established market and client base, so the value of this investment is destined to process improvements, recruiting new talents, creating new departments and continuing the company's expansion. As in Series A, Venture Capital investors are the main ones in Series B rounds.
Series C investments are generally tied to companies that are already successful and are looking to expand internationally, increase market value before the IPO (Initial Public Offering) or acquisitions. Venture Capital Investors also participate in Series C rounds, but there is the presence of Investment Banks, Hedge Funds and Private Equity Funds, as the company has already proved to be a success and bring greater confidence to investors.