11 Aug Venture Capital Funding Rounds
Venture Capitalist is not your traditional venture fund. We don’t raise massive funds only to invest in a bucket of companies. Each deal we make stands as a single quality investment to provide each business we partner with the full support and interest of investors for solvency and profitability in the long-term.
Entrepreneurs often raise capital through multiple rounds of financing to fund growth and take advantage of higher pre-money valuations with each subsequent round. Typically with each round, the probability of a successful business increases resulting in higher valuations and new term sheets are negotiated appropriately.
The purpose of seed funding is to provide adequate capital to turn an idea into a viable product/service and determine your target market/users. Valuation of pre-revenue companies is extremely difficult and often involves more art than science. The caliber of the founding team, market size, competitors, intellectual property, value propositions, expected time-to-market, growth expectations, and many other variables are taken into consideration when valuing a startup. Seed funding contributed from angel investors and early-stage venture capital firms is used primarily to hire a solid management team, fund R&D, product validation, and testing in order to progress and attract investors for the next round of financing.
At this point, the product has been determined and it is time to solidify a business model to scale distribution and adapt to markets in other geographic locations. Valuation is similar to that of a seed round, but also takes into consideration how the initial investment of capital was utilized to hire a quality management team and develop a sound product. Typically one or more venture capital firms participate in a Series A and purchase a 50% ownership stake in the company while working to gain traction in the market.
Once serious traction has been obtained in the market and a robust business model has been established, a Series B round is held to raise additional capital for scaling the business. With a higher valuation than a Series A investment, this round tends to be a larger financing from later-stage VC firms. This capital is put towards marketing efforts, hiring more sales reps, product enhancements, additional market analysis, and possibly acquiring a few companies to attract more investors for an additional round of financing.
Essentially, the purpose of a Series C is similar to that of a Series B but at an accelerated pace. This round is used to gain a larger share of the market, become profitable, finance acquisitions, expand product lines, and ultimately prepare for exit via acquisition or IPO. With a more mature company comes streamlined operations and consistent cash flow. Through a combination of comparable companies, precedent transactions, and discounted cash-flow analysis, valuations are made and justified using metrics like sales and EBITDA multiples. While investors from previous rounds may continue to participate, investment banks, private equity firms, and hedge funds contribute capital as well.
We like companies with somewhat predictable cash flows and a history of success with an existing foothold in their particular market. We take the company the entrepreneur has started and provide the capital to take risk off the table for the owner(s) and help grow the company to the next level of profitability. We believe that capital is more than just money, contact us today!