What is a funding round?
A funding round is when a company sells new shares to raise capital. Each round typically occurs at a new, often higher, valuation.
Typical phases
- Pre-seed / Seed — Early stage. The product is often a prototype. High risk, low valuations.
- Series A — The company has a product and early customers. Capital is used to scale.
- Series B-D — Growth phases. The company expands market, team, and product.
- Pre-IPO — Late stage. The company prepares for an IPO.
What does it mean for investors?
- Earlier stages = higher risk, higher potential returns.
- Later stages = lower risk, but often higher valuations.
- Each round means dilution for existing owners.
Key terms
- Pre-money — The company's valuation before the new investment.
- Post-money — Valuation after the capital is added.
- Down round — When the valuation is lower than the previous round.
Summary
Understanding funding rounds helps you assess where the company is in its journey and what risk you're taking.