Each fund will normally finance multiple different businesses – with the range of likely individual

investments normally announced when the fund launches.

For example: Partech Ventures recently raised €400m to specifically invest in innovative tech start-ups.
The fund was drawn from 30 major European and US investors along with business angels,
entrepreneurs and tech executives – including the European Investment Fund.

Most start-ups who raise venture capital funding have been refused funding by traditional lenders, such
as banks, because they're deemed too risky a bet.

However, of those that don't fail (of which there will be many), the likelihood is that they'll experience
long-term growth and provide a substantial return for investors.

While venture capital firms know that not all investments within a particular fund will pay off, it's hoped
that those that do prove a winner will be so successful that they'll not only offset against any losses – but
also far exceed them.

An important consideration for entrepreneurs, venture capital funding is absolutely no guarantee of

success, and for many venture capital firms the process is akin to commercial fishing: if they cast a big
enough net (invest in multiple businesses via a fund) they'll be bound to catch something.

As part of the investment contract, many investors will also have additional requirements. For example
they may want to sit on the board of directors or be involved in certain recruitment practices.

As you'll read below, perhaps the biggest benefit of working with investors is that, due to their industry
knowledge and experience, they'll be able to offer your business a lot more than just cold hard cash.

The difference between investment stages

While 10 or 15 years ago venture capital funding was almost solely reserved for a select few start-ups
with massive growth potential or a wealth of good connections, recent years has since a surge in finance
available for businesses of all sizes and sectors.
Previously, you may have been tempted to bootstrap entirely, but the likelihood now is that you’ll need
to rely on more than just family and friends for the capital necessary to launch and scale your start-up.

With a multitude of firms bagging funding nearly every day, compiled with the unstoppable rise of
alternative forms of finance such as crowdfunding, its easy to get overwhelmed and confused by the
different forms of venture funding currently available to businesses.

So, what do the different series of funding (pre-seed, seed, Series A, Series B, Series C etc.) mean?

Essentially, each letter corresponds with the development stage of the start-up that has received
funding.

However, it’s worth remembering that as the number of start-ups accessing venture capital funding
changes – so too does the definition of each round.

Mandeep Singh, co-founder of online marketplace Trouva, who recently raised $10m in a Series A
funding round, explains the constantly changing definitions:

“There is no fixed rule and the definition has changed over time. Historically seed funding was to build a
product, Series A was to identify product-market fit, Series B was to scale.

“However, with the rise of lean technology start-ups and more early stage funding, most start-ups now
get angel funding to go and build their product and then raise one or more institutional seed rounds to
find product-market fit.

“Series A are therefore these days often harder to achieve but larger than they used to be as they are the
stage where you also scale the business.
“Series B onwards are also expansion rounds for things like international expansion, launching new
products or simply scaling revenues.”

What is pre-seed funding and seed capital?

Helping to get your start-up off the ground, the pre-seed and seed funding stages serve a very similar
purpose – and always take place when a start-up is very early in its journey, sometimes less than a year
old.

Often helping to support the initial market research and R&D for a start-up, businesses who raise seed
funding will often still be at a prototype stage – and may not have fully developed their idea or even
know exactly who they want to sell to.

For many, the seed stage will be the first opportunity to employ staff outside of the original founding
members too.

Angel investors and early-stage venture capital firms are the main backers at the pre-seed and seed
funding stage – one that is both the most daunting for entrepreneurs and the riskiest for investors given
the lack of track record of the start-up involved.

Normally, a seed funding round will contain less than 15 investors who’ll gain convertible notes, equity,
or a preferred stock option in exchange for their backing.

As a general rule of thumb, most pre-seed rounds will normally describe a funding round of around
$100,000-$250,000 with the relevant start-up having a pre-money valuation in the $1-$2m bracket –
while seed funding will start to come in around the $1m – $2m mark (but will sometimes be more).

While a business may have certain aspects unfinished or be still in a development stage when looking to
raise seed capital, they will need a minimal viable product to raise seed funding – but not pre-seed
funding.
Either way, for entrepreneurs with eyes on an eventual lucrative exit or IPO success, pre-seed and seed
funding rounds are considered stepping stones on this journey.

Advantages for start-ups in raising pre-seed and seed funding range from being given more time to fine-
tune their business model, more time to find experienced business partners, increased capital for future
rounds, and more flexibility to pivot if some drastic changes need to be made.

What is Series A funding?

While you can certainly raise seed funding on nothing more than potential alone, bagging some Series A
funding is all about demonstrating that your start-up has a proven track record and the ability to scale
quickly and provide a serious return for investors.

When considering whether to raise Series A for your start-up, it can be helpful to consider whether you
have a market-proven product that will allow you to easily multiply your revenue within 18 months –
because that’s what investors are looking for.

Though unusual, some start-ups will skip seed funding and go straight to a Series A raise. This will
normally come about because a venture capital firm will approach the start-up first.

However, in such an instance, the entrepreneur will be asked to give away quite a large chunk of equity –
often bigger than 20%.

Rather than taking a punt on a novice, investors will also be more likely to back a business at the Series A
stage, that hasn’t raised seed funding, if the entrepreneur in question has already had a successful large
exit with a previous start-up – or significant experience and connections within their industry.

Generally, Series A funding rounds will range between $2m to $15m – though may be substantially
higher than this if the business is considered to have ‘unicorn potential’ (a unicorn is a start-up that is
valued at over $1bn).
Unlike seed funding rounds, investors at the Series A stage will come from more traditional venture
capital firms – with angel investors having less influence. Typically, a few of the bigger firms will lead the
investment, often strategically so.

During the Series A stage, a start-up’s valuation will be calculated by its proof of concept, progress made
with initial seed capital, quality of executive team, market size and the risk involved.

Advantages for start-ups raising Series A include the ability to scale faster with a larger financial reserve –
as well as increased recognition within their industry.

What is Series B funding?

After proving it has a perfect product-market fit and a scalable marketing blueprint, Series B is all about
building – and in this round, start-ups should be well clear of the development stage and looking to
expand their market reach.

Businesses looking to raise Series B capital will already have fully launched their product/service and will
now be targeting a market share in their chosen sectors and looking to compete against larger, more
established competitors.

While the chances are that a business raising Series B will already have a significant turnover, it’s at this
point that it should start to also turn a profit.

Series B rounds can range anywhere between $7m and $20m – and will appear quite similar to Series A
in terms of the process and what investors will be involved.

However, some venture capital firms that specialise in later stage investing may be present in a Series B
funding round.

Sometimes considered the hardest round to raise, while Series B start-ups are considered less-risky than
those at seed or Series A stage, any tendency by investors to suspend disbelief and back a business on
potential is completely gone.
If seed is raised on vision, and Series A on hope – then Series B is raised on pure facts and figures.

A time of slow growth for the start-ups involved (Series C is where scale-ups start to grow really fast),
Series B isn’t the most popular stage for investors either, as most would rather invest cheaper at Series A
or with less risk at Series C.

Businesses who successfully raise Series B funding will normally invest in business development, sales,
advertising and tech – as well as beginning to eye-up possible international expansion.

During the Series B stage, a start-up’s valuation will be calculated by, its performance in comparison to
that of its sector, revenue forecasts and its assets such as intellectual property.

What is Series C funding?

Start-ups who are at the Series C stage of funding have all but proven to venture capital firms that they’ll
be a long-term success – with original backer’s shares now having increased considerably in value.

As a result, Series C raises are considered a very safe bet, from an investor’s point of view.

Businesses at the Series C stage will look for an even greater market share and to develop even more
products and services and may also start preparing for a potential acquisition – both of itself by a larger
corporate – or to buy a smaller competitor.

The final stage for many start-ups before they seek an Initial Public Offer (IPO), valuation of a business at
Series C is done on the basis of hard data – with this round more an exit strategy for the venture capital
firm.

Groups such as hedge funds, investment banks, private equity firms and big secondary market groups
will all also begin to invest at this stage where companies can raise anything from single digit sums to
hundreds of millions.
What is the role of a venture capitalist?

With the unstoppable rise of the ‘armchair investor', even someone with the most ill-informed views of
what constitutes a sensible investment can now back start-ups to their heart's content.

Indeed, via alternative forms of raising finance such as crowdfunding, businesses can nowadays rise
millions of pounds worth of investment – without giving away an inch of precious equity.

So why do businesses decide to part with larger chunks of equity and go down the venture funding
route?

The reason for this often lies in the role of the venture capitalist – and what they can offer your business
besides the initial injection of cash.

What services can a venture capital firm offer besides investment?

Support services: Increasing in popularity in recent years, many of the larger venture capital firms will
have their own in-house marketing, legal, tech and recruitment teams that will offer their services to
start-ups and smaller businesses that receive investment.

Strategic introductions: Often experienced entrepreneurs themselves, investors or partners in venture

capital funds should have a wealth of contacts that your business should be able to tap into. Streamlined
and direct, these introductions will be highly specific, strategic and targeted. Said introductions could
include potential partnerships with larger corporates, new investors or clients, or even potential hires.

Experience in efficiency: A seasoned investor and businessperson can streamline communication

channels and ensure boardroom meetings are suitably productive. Helping to formulate strategy and
direction, an investor can ensure your business is prioritising properly – from the top down.

Wider market knowledge: While you'll no doubt have spent the majority of your time concentrating
solely on your own business, venture capitalists have been scanning various horizons. As a result, an
engaged investor can give much needed insight into international markets, potential new clients and
even exit opportunities.

Best practice: Investors can add significant value by helping instill good governance in areas such as
financial controls and reporting, business ethics, and contractual issues and procedures.
A top tip to consider when sizing up potential investors, ask yourself whether you’d want them on your
board without their cash. If the answer is ‘no’ you should probably go no further, if it is ‘yes’ you are
likely to make a better decisio

. Character of the business partners

The people behind an idea or company and, more importantly, their character is extremely important.
You could have the best idea in the world, but it might never get off the ground with the wrong team in
place.

“Their reliability, honesty, potential for a long-term relationship and work ethic all come into play. A team
who understands their roles and performs them with love and enthusiasm is very hard to beat. I have to
feel completely confident in the abilities as well as the character of the team before investing,” says
Başel.

Related: How to Start a Business With (Almost) No Money

2. Capacity of the business partners

You can’t just fill startup roles for the sake of creating a team and launching. You need to make sure each
person is highly qualified and possesses the ability to take the business to the next level. For example, a
CFO with limited financial experience is a disaster waiting to happen, while a CMO with limited
marketing experience is a severe handicap.

“There has to be a capable team with potential to grow the business and to carry it to high levels of
success,” explains Başel. Experience and past track records play a major role in providing a little more
confidence. Building the right founding team greatly increases the odds of securing VC money.

3. Innovative idea

Every new startup is the Uber of something, and it’s played out.
With less than 1 percent of all U.S. companies ever receiving VC money, you need to stand out, and the
way to do that is by having something truly innovative and unique. You are only going to attract initial
interest if your idea is something that the VC hasn’t been pitched several times already.

Başel elaborates, “It needs to be new and something that no one has ever tried before, or succeeded at
before. Something innovative with extensive research and development will pique my interest enough
for me to at least look at the pitch.”

Related: 8 Reasons a Powerful Personal Brand Will Make You Successful

4. Communal benefit

Startups come and go, and while nobody has an exact percentage, most people put the startup failure
rate between 80 and 90 percent. The few startups that experience massive success all solve a problem.

Uber made commuting much easier. Snapchat made communication easier. Airbnb made travel easier.
You get the point.

“I like startups that bring value to the community and to humanity in general. Do they solve a large-scale
problem? Do they provide a benefit that a large percent of the population will desire to utilize? If the
answer to those questions is yes, then they have a much greater chance of attracting interest,” offers
Başel.

5. Long-term sustainability

“It has to be something with longevity to make it worthwhile from an investor standpoint. A short-term
idea might still be viable and profitable, but not typically from a VC point of view,” suggests Başel.

Venture capitalists deploy millions of dollars, wanting multiple times return on that investment. That is
why VCs focus heavily on the long-term sustainability of an idea. If they don't believe the shelf life is
large enough, they simply won't invest.
Related: Habits of the World's Wealthiest People (Infographic)

6. Financial outlook

VCs invest to make money. There is no other reason. It’s a business.

Başel is no different from other VCs, stating, “The last thing I look at is the financial outlook of the
business, determining when it will start becoming profitable.” The deal needs to make financial sense
and not tie up money too long. The goal is to recoup the initial investment and re-invest in another
project.

Not every opportunity is going to produce overnight returns, and the risk versus the reward is always
taken into consideration. While every deal is different, profit potential and the probability of a return on
the initial investment is always analyzed heavily.