Hello, everyone. This is Alejandro Cremades. Today, what we're going to be talking about
is how rounds of financings work for startups. First and foremost, we're going to be talking
about the expectations, the milestones, and everything else that happens from financing
cycle to financing cycle. So, let's get to it.
The first round of financing is going to be the Seed Round. I don't care if people are
calling it micro-seed, pre-seed, whatever that is. It doesn't matter. It's still a Seed
Round. Any round of financing that doesn't involve an institutional investor, such as
a venture capital firm, a private equity firm, and is just including angel groups, angel
investors, or perhaps other individuals, it's still called a Seed Round.
In a Seed Round, the milestones that you're going to be going after or maybe the expectations
that you're going to be receiving is that you need a prototype, that you need a founding
team, and that you need to have a strong, clear understanding of what's going to be
the 18 to 24-month roadmap that you have in front of you.
Basically, for this, what you need to know is that we're talking about amounts that range
between as little as $200,000 all the way up to 2 million dollars, especially if you're
in the East Coast or the West Coast of the U.S. Obviously, this depends on the geographic
location of your startup. That is also going to determine the amount of money that you
should be going out to seek. Now, for a Seed Round, what you need to understand
is that at the end of the day, people are betting on your future. It doesn't matter
so much your historical data, where you're coming from, or where you're at today. The
only thing that is really exciting to investors is how compelling your future is, and how
you're painting that, and perhaps the potential market that you're playing because at the
end of the day, the market is going to limit the amount of returns that that investor is
able to generate. The next round of financing, once you've been
able to unlock certain milestones is going to be the Series A. In terms of milestones,
what investors want to see is that you already have a wheel that turns around, meaning that
you have been able to validate a repeatable and scalable business model.
What that means is that by adding more people to that wheel, the wheel is going to turn.
It's not going to turn faster, just like that. It's all about being able to put more money
because the technology and the ultimation that you've been able to create on that business
model is going to get, with more money, that wheel to turn around faster.
That means it needs to be a repeatable and scalable business model. By throwing more
people in and thinking that wheel is going to turn faster is not going to be a sustainable
business model. For the Series A, what you're looking at is
institutional firms, for the first time, that are going to be investing in your company.
That's going to be venture capital firms. Obviously, you're going to still deal with
venture groups like the ones that are operating at a seed-stage or maybe the ones that are
operating at a Series A. But, really, the ones that are going to be leading your round,
meaning becoming that lead investor, are going to be Series A and early-stage venture capital
firms. What they're looking for is that you have,
not only as we discussed from the Seed Round, the founding team already in place, they're
expecting that you have the senior leadership of the team already in place. And that you
have a strong, clear idea that if you put one dollar into this business, you're going
to be able to take two dollars out or three dollars out so that you have a clear understanding
of how that business model is going to provide, in terms of the input that I'm putting in,
and the output that I'm taking out. That's for the Series A.
When it comes to amounts, obviously, Series A is a little bit more spread across the board,
but when it comes to amounts, what we're looking at is anywhere between 5 million raised all
the way to 15-million dollars raised. When you go to a Series B, it's that wheel
turning super-nicely. There is historical data already in place. If I'm investing x,
I know I'm taking out y. Here is where private equity firms come more into play because they're
investing in numbers rather than in people, for example, what venture capital firms would
do. But still, VCs are also contributing and participating on Series B rounds.
The type of investors that you always want to have in place, leading your rounds—I
don't care if they come maybe, let's say, at a Series A, at a Series B, you want to
have people that have enough financial muscle to continue investing along the way as you
continue to mature the business, and you continue to unlock your milestones.
For example, if you have a great Series A investor that is investing in your Series
A, perhaps they're also going to be investing and leading your Series B round. So they are
taking and removing some of that distraction so that you can continue to focus on the execution
and making sure that you continue to push things forward, rather than being distracted
with raising money. On a Series B, it's all about turning the
wheel faster. It's all about making sure that the 18 to 24-month roadmap is in place and
that it makes sense. Then, also, it's all about grabbing a business model that is already
working and replicating it and really thinking more about expansion and going into other
geographic locations. I think that one of the things that you want
to understand is that in every single financing cycle, the investors that you're bringing
in are also bringing certain skill sets, certain expertise, or perhaps certain networks that
are going to help you to push things forward. Those networks are going to contribute from
a hiring perspective, an M&A perspective, and also from a fundraising perspective because
they may be able to introduce you to other potential great investors that could invest
in your round. After the Series B, it is more of the same.
The investors are going to be continuing to invest on a Series C, D, E, or whatever that
is, all the way to an IPO or to an acquisition because the goal is to get to the promised
land or to get to that scenario where either a larger player is acquiring your business,
and that's going to be able to provide the returns to the investor. Or perhaps you're
getting to an IPO, to an initial public offering, where everyone at the end of the day wins.
That is ultimately what is called a liquidity event.
With that being said, those are the ways the financing rounds work, the different expectations
that you're going to be encountering. Don't forget to like this video, and also
to comment and subscribe, and as well, on the link below, you're going to be able to
find access to the fundraising training where we help from A to C entrepreneurs in the journey
of raising money. If you like the video, make sure that you
hit that subscribe button. If you can leave a review as well, that would be fantastic.
And if you got any value either from this episode or from the show itself, share it
with a friend. Perhaps they will also appreciate it. Also, remember, if you need any help,
whether it is with your fundraising efforts or with selling your business, you can reach
me at alejandro@pantheraadvisors.com.