SEED - Deepstash

SEED

Capital from a seed round often fuels a startup’s move beyond its founding team, funds product development, and in some cases, even facilitates early revenue generation.

Wrapped-up within seed investment are expectations that strong signs of Product/Market Fit and some degree of traction (in the form of a growing waitlist, or month-on-month revenue growth) will begin to emerge, paving the way for later fundraising.

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Why modern-day investment looks the way it does
  • INVESTMENT HAS INCREASED MASSIVELY: the overall growth trend for fundraising is hugely positive:
  • IF THERE’S A BUBBLE, IT HASN’T BURST: The escalation of company valuations and ever-increasing round sizes has led many to speculate about an investment bubble.
  • THE EARLIER THE ROUND, THE RISKIER IT IS: Perceived risk levels impact the types of investors attracted to a deal, and the amounts raised.
  • MOST INVESTMENT TAKES PLACE IN THE ENTERPRISE.
  • “SEEDS ARE THE NEW SERIES A”: This continued increase in investment has created a kind of fundraising inflation.

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In Series B, investors are looking for the next stage of growth: the ability to take everything you’ve learned, and make it work at scale.

In practical terms, Series B investment might allow a startup to make expansive hires (across business development, strategic accounts, marketing and customer success), expand into different market segments or experiment with different revenue streams, and in dramatic instances, even buy-out businesses that offer a competitive advantage.

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Series C rounds are raised to fuel large-scale expansion, like moving into a new market (commonly international expansion), or to fuel acquisitions of other businesses.

After Series C, there’s theoretically no limit to the number of investment rounds a startup can raise: some companies will go on to raise investment through Series D, E and beyond.

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Revenue growth is the name of the game in Series A. By this point, a startup is expected to have clear and growing evidence of Product/Market Fit, translating into significant revenue growth from new customers and increasing ARPA (Average Revenue per Account).

Angels (often referred to as “super” angels) will sometimes invest in Series A rounds, but it’s usually the venture capital organisations that dictate this round.

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A typical pre-seed round sees a founding team (often pre-product) receive a small investment to hit one or more of the milestones they’ll need to ready themselves for “true” seed investment: from hiring a critical team member to developing a prototype product.

Led by many of the same investors that lead seed rounds, pre-seed financing is often used to bridge the gap to the next round.

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What Is Bootstrapping?
  • Bootstrapping is founding and running a company using only personal finances or operating revenue.
  • This form of financing allows the entrepreneur to maintain more control, but it also can increase financial strain.

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60% Were Not First-Time Founders
  1. Among the founders of billion-dollar startups, almost 60% were not first-time founders.
  2. In a randomly selected group of startups that had raised a minimum of $3 million in venture capital funding but didn’t reach unicorn status — the typical picture for a seed-funded startup — about 40% were not first-time founders.
  3. The statistic shows that repeat founders were more likely to start a billion-dollar company.
  4. This is not to discourage first-time founders. It is rather to encourage those with a failed or those with a small outcome in the first attempt to go at it again.

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Fundraising sources

Fundraising is both a science and an art. The method that a startup uses to raise money helps determine its financial situation and how much help and advice the startup receives along the way.

Startups may initially use personal or family funds to start the business, but crowdfunding has also grown in popularity. Still, venture capital funding is the dominant source and is at an all-time high in recent years; CB insights reports that U.S.-based venture capital investments totaled $130 billion in 2020.

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