Investment Rounds

As a company grows and seeks investment it will do so in stages, called rounds but labelled ‘series’. At each stage, the expectation is that the capital raised in the preceding round has been used to increase the value of the company so at each round the valuation and therefore potential to raise more capital, increases. Each round is given a letter to designate the incrementing rounds.

Rounds for a commercialised company start with Series A then B etc. Sometimes, the round is repeated at the same valuation so there may be a B1, B2 etc. Rounds for companies that are at an early stage in their life cycle, typically pre-commercial, are termed Seed (or even pre-seed).

Capital received is traded for a percentage of company ownership (equity) that the founder and investor agree represents the portion of the company valuation equivalent to the investment being made. 

Different investors prefer different stages. The earlier the investor buys their equity stake, the greater the potential return over time if the company succeeds, but the greater the risk of the company failing.

In general pre-seed and seed investments are the realm of angel investors (who typically invest their own money), and Series A rounds onwards are where Venture Capital firms (VC’s) make their assessments and invest from a fund.

Very early-stage investments typically come from the family and friends pool of supporters, although equity crowdfunding aims to expand that reach.