Posted by Assure ● Oct 5, 2021 10:12:25 AM
Companies that wish to grow quickly need to know the difference between funding rounds if they want to be successful in raising the capital that will help them do so. After all, while investors may just want to get in with any early stage funding, companies will need the right amount of cash at the right time in order to benefit from an injection of funds. And for those companies that are interested in how to get seed funding, a little bit of knowledge can go a long way and help you optimize your seed capital funding.
Before companies can start raising money or investors can help give funding to companies in need, it's important to know how investment
rounds work. It starts with an angel round, goes on to a seed round, and then the larger VCs step in with the big money to help that smaller, growing company really scale their efforts.
First up is the angel round, which are typically smaller investments of around $10,000 all the way up to sizable investments of $25,000. In this stage, angel round funding is used to grow a company from the initial stages to a point where they have the capabilities to step up to larger funding efforts. In this sense, angel rounds are much smaller than seeding rounds that may look towards larger investors.
Indeed, investments in seed rounds vs. angel rounds are another step up. Instead of smaller investments, a typical seed fund investment may be around $50,000 on the low end up to over $1 million on the high end. These investment opportunities are usually reserved for larger seed funding groups vs. angel investors that may have missed their opportunity at this point. Many seed funds may have minimum ownership requirements while angel investors may simply walk away with company stock.
After the seeding round, larger venture capital investors may get involved. It's their capital that will help a company grow exponentially, and typical investments may be in the $5 million to $15 million range. Many VC funds at this level actively manage over $200 million in assets, and most VC funds will also want exclusivity in their funding rounds, as well as specific ownership requirements.
Whether it's an angel round vs. a seed round, investors won't typically give funding to a company without first working out what they might get in return.
While they may not be giving the huge sums of seed investors, angel investors will often meet with the owners of a company to ask questions and determine if the investment is a good fit. However, one angel investor can help a company attract other angel investors, making momentum an important component at all levels of funding.
Seed rounds often take longer due to the amounts and concessions involved. Multiple partners are also common, and funds will often conduct serious research into the company's financials before committing any capital. Some rounds may need to be priced, but it all depends on the seed fund's demands and contingencies.
Larger VC funds often take longer -- on the order of months instead of weeks. The process typically follows the following steps: an initial meeting, working out the parameters of the deal and finally a formal meeting where the investment opportunity is pitched. VCs are typically much more diligent than angel or seed investors, which makes sense given the large investment amounts at stake.
Each investment round — such as angel rounds vs. seed rounds vs. VC rounds — often come with different expectations on behalf of the investor.
Due to the lower investment amounts at hand, angel investors may do little more than cutting a check and opting for company stock. Some angel investors may want to get involved in the company post investment, but it's rare for an angel investor to acquire control or a board seat.
Seed rounds will often bring in seed funding with some kind of formal time commitment, as well as regular meetings and maybe even the formation of a board of directors to help look out for the interests of the company. In a seed round, the goal is often to make it to the next round where larger VCs can help inject substantial capital.
As mentioned, larger VCs will likely have many strings attached to their investments. VCs will want to be present on the board and may even act to remove certain executives if the company underperforms. The goal of most VCs is to take the company all the way to an IPO, which can help all the investors along the way see a sizable return on their investments.
Here at Assure, we make raising capital easy. Whether you're just starting out with early stage funding or you want to go from an angel round to a seed round and beyond, you'll need a suite of tools to help you stay on top of the private investments that can help take your company to the next level. Get started today or learn more about our Glassboard software.
Topics: For Investors