what are VC funding rounds?
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They are investments made by private companies that specialize in funding (and usually helping to run) startups at a very early stage. Typically the earliest funding will be called “angel” funding, because it’s like a blessing from heaven to get money for what, at that point, is usually a completely unproven idea. The next rounds of funding are usually given letters (A-series, B-series, C-series) to indicate the order.
Imagine you have a great idea for a company. But you don’t have any money to get it started. So you approach other people and ask them for money in exchange for partial ownership of your new company. That’s the seed round.
You took the seed money and started your company, but it’s still early and your company isn’t making its own money yet, so you’re running out. The good news is, your idea was awesome and it shows strong signs of being able to make money in the long term (as opposed to companies who can’t figure out how to monetize their idea). You approach more investors, tell them your business plan, and they give you money so you can keep going. That’s series A.
Your company is succeeding and proving itself to be profitable. You’re past the prove-it stage and entering into a strong growth period. You need more money to hire more (and more talented) people to facilitate this growth. That’s series B.
Your company is now quite large and very successful. You’re turning a profit with your operations, but that money is earmarked for operations and growth that’s already inside the scope of your company. You see there’s more room to grow. You’re looking into things like developing new products, entering new markets, and buying other companies. You need an injection of cash to kickstart these new ventures. That’s series C.
Venture capital funds (VC) focus on investing money in new and start-up companies. Most start-ups fail or don’t live up to expectations but a few have the potential to takeoff and grow big so the aim is to spread their capital across many startups and then the few that eventually takeoff will make most of the returns.
New start-ups that need money in order to grow will pitch their ideas and companies to VC funds and if the VC funds like what they see they’ll invest some money in that startup. This can be done in a variety of ways by either buying equity in the startup, loaning them money, or using other financial products.
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