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)