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What is Venture Capital? Making Sense of the Funding Process

By: Admin

We regularly get questions from entrepreneur’s seeking funding about the process, stages and jargon they read and hear in the market. Here is a quick table that will help explain “what is venture capital” and how the funding process works. Hope it’s helpful!

Seed Round
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1. Business Development Stage:
Company has identified a market, created a convincing business plan and assembled the essential leadership team

Use of Proceeds:
Build the core solution and secure initial customers to validate

Sources:
Angel Investors, Venture Accelerators, Early Stage VC’s (limited)

Series “A”
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Business Development Stage:
Solution is proven with real customers; market demand can be demonstrated; team ready for broader rollout

Use of Proceeds:
Fund initial go-to-market costs and next round of product development

Sources:
VC’s

Series “B”
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Business Development Stage:
Solution adoption is strong; company can’t meet demand due to lack of resources; market reputation is established

Use of Proceeds:
Expansion into new geographies or additional market segments/channels; Bringing in talent to scale the business

Sources:
VC’s

Growth Equity Round(s)
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Business Development Stage:
Company is a success; time to pursue additional new markets and solutions; founder may be seeking some liquidity

Use of Proceeds:
Company expansion

Sources:
VC’s, Growth Equity Funds

Convertible Notes/Venture Debt
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Business Development Stage:
Similar to Seed Round, but Company seeks to minimize dilution by offering debt to be converted at discount in next financing round

Similar to Seed Round; Company needs additional funds to get to point where additional equity can be raised; fill unexpected gaps or give time to get to higher valuation level

Use of Proceeds:
Similar to Seed Round

Sources:
Angel Investors, Venture Accelerators, Venture Capital Lenders, Early Stage VC’s (limited)

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