Terms such as Pre-seed, Seed and Series A funding often alienate new founders, making them feel out of their depth.
We want to assure you that these funding phases aren’t as complex as you might think.
We’re going to outline what defines the first three funding rounds, so that you can navigate through them with confidence.
In total, there are 7 stages of funding:
· Pre-seed
· Seed
· Series A
· Series B
· Series C
· Series D & E
· Initial Public Offering (IPO)
Transitioning through the rounds takes a lot of time and dedication, so don’t worry - you can get to grips with the later phases as you grow and scale.
Investments from Series C onwards deal with enormous sums of money sourced from Hedge Funds, Private Equity and Investment Banks.
So, let’s focus on the here and now…
Pre-seed Funding 💰
What is it?
Occurring whilst your business is merely an idea, pre-seed funding is your first opportunity to gain the capital needed to make it a reality.
Where does it come from? When raising Pre-seed, family, friends, and other internal sources generously contribute to your business’ piggy bank. At this level, they’re probably investing in you, as well as your idea.
How much can I raise? Pre-seed investments don’t tend to exceed £150k.
Does this sound familiar? Here are a few common identifiers of a Pre-seed business:
✔ You’re yet to produce a tangible product, but you’re in the process of perfecting your blueprint. You may have laid down the skeleton of a prototype that shows some function.
✔ You have identified a clear gap in the market, and a plan to fill that gap with your product.
✔ You’re thinking of recruiting a small team or a software development agency to help you advance with the production phase.
✔ Your technological expenses are stacking up, as you’ve been experimenting with services.
The Pre-seed phase is a difficult one.
Do you commit to taking the plunge? Do you sit with your idea for a little longer?
Whilst everything’s up in the air, use your peers as a sounding board to gauge demand. This should indicate whether you’re on the right track.
Seed Funding 💰
What is it? Seed funding occurs when external funds are first introduced to the business in order to grow an existing operation.
This funding round develops your product, facilitates market research, and expands your team.
Seed funding entails giving away a portion of equity, in exchange for capital.
Where does it come from? Seed funding is typically sourced from Angel Investors and High Net-Worth (HNW) individuals. Venture Capital (VC) funding is also possible at this stage.
How much can I raise? Seed investments provide anything from £150k - £2m.
Seed investors likely don’t know you from Adam, so to stand out, you’ll need to have a few things in check:
✔ You should be able to demonstrate at least some revenue. Whilst a comprehensive profit and loss (P&L) statement may not be attainable, you’ll certainly need some financial metrics.
✔ Approach Angels or HNW investors with a cohesive and passionate team. Not only does this reflect viability, but it also shows investors that other professionals have faith in your product.
Series A Funding 💰
What is it? Now, the stakes are raised and competition heats up. In fact, most startups don’t even attempt to cross the bridge from Seed to Series A.
Series A funding is used to optimise your product and user base, and potentially scale your product into new market territory.
Again, Series A investors will be in want of a company share with the expectation of a lucrative return on investment (ROI).
No pressure!
Where does it come from? VC firms, which hold a portfolio of numerous investments across different size businesses.
How much can I raise? Series A funding can get you funding up to the £15m mark.
To succeed within Series A, VC investors will be on the hunt for:
✔ A comprehensive business plan laying out the future 12-18 months.
✔ An excellent pitch deck - a succinct presentation showcasing your product and why it’s important.
✔ For SaaS companies, many Series A investors see annual recurring revenue (ARR) as their strongest determiner of whether you’re ready to raise. Generally, when a company passes $1 million in ARR they’re deemed ready for Series A.
✔ A perfect match between VCs and startup team – certain VC firms tend to favour certain business models, regardless of sector. Look through different VC portfolios and make sure you approach a firm that favours your operation.
We hope that this introduction helps you structure the course of your business venture and figure out where you stand on the funding timeline.
From there, you can determine who your suitable investors are, and what they’ll be needing from you in exchange for capital.
In the Seed and Series A stages in particular, your accountant has the important task of producing the financial documentation to back-up your pitch.
Any numerical inconsistencies will be an easy way to get red-flagged by investors.
Therefore, if you want to progress your business to the top of its’ game, it’s vital that your accountant is well-versed in high-growth business protocol.
Our experts at Jump Accounting have years of experience in integrating accounting services with the fundamental goal of maximising the growth of your business.
If you’re struggling to manage your companies’ finances alone, or are tired of chasing a disconnected accountant, get in touch with our experts today.
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