🪴 Fundraising requirements for each stage
what are investors really looking for?
Your current fundraising round not only decides how much equity you get to keep, but also the runway life for your startup. Getting it wrong can cost you money, share in the market, and most importantly — momentum.
How do you get the fundraising done right? Components include size of the round, timing, investor interest to maximise the capital you are about to raise, whilst at the same time minimising equity you give away.
No investor is the same. Your strategy should shift including the stage your startup is currently the part of. The early rounds (pre-seed, seed, series A) should focus on your company's vision and its storytelling, while the later-stage rounds should prioritise efficiency.
For a quick overview:
Pre-seed funding.
Series A focuses on monetization.
Series B supports scaling.
Series C funds expansion or acquisitions.
Fundraising requirements per stage
Seed stage
Startups in the (pre-)seed stage typically raise between $500k and $5M, with a median falling on $3.4M. At this stage, funding is used for a completion of your founding team, finishing (improving on) your MVP, while giving you a few months of lifetime. Investors in this stage focus mainly on:
The founding team and their potential to execute (and capitalise) on an idea
Having a clear problem to solve, showcasing enough potential traction to be worth their time
Unique product differentiation from competitors, so you can capture a large share of market
Bonus: The founding team having an expert insight into the market, not just following their hunch
While having an early round backed by a VC can maximise the money you get out of the deal, going instead with angel investors that have expertise in your market boosts the survival rate. This shows it's much more important to focus on a mutual alignment with the investor, than on money as a source of your relationship.
Early Stage
Once a startup has validated their market and their idea by developing their product and gaining enough traction to showcase a real need for their product, it moves to an early startup stage, where typical funding rounds can range from $2M to $25M, with a median of $9.9M. Now the focus shifts from entering the given market, to increasing momentum. This typically involves a VC-raised round, with a focus on getting a much bigger cash injection to prepare for a rapid scaling.
Many startups at this stage focus on traction > profitability, therefore the sums of cash investments need to be exponentially higher than what you think you need. Many have failed by underestimating how much money they really need to get to a profitable state, resulting in them having to focus onto raising another round in couple of months, losing a ground underneath their product's feet.
To attract funding at this stage startups should demonstrate:
Complete S-tier team, ready for rapid scaling
Early traction, ideally achieving Product Market-Fit (this can look very differently from company to company)
High growth potential
Good plan with a focus on the right metrics for the near future
Investors are on the other hand looking for startups being able to prove that their idea is going to be worth 100x in just couple of years, than it is now, plus a clear trajectory on how to execute this vision.
Expansion Stage
Funding rounds in this stage typically range from $15M to $30M, with a median of $21.5M. The focus here is executing on the scaling plan established in earlier stages, expanding into new markets where you also achieve PMF (enter graph) and optimising all your processes at the same time, since chances are they are a whole lot of a mess from before. Investors are mostly VCs, focusing on:
Scalable GTM motion
Strong team (outside of founders)
Competitive edge
By this point, most investors don't care about your vision, and focus more on the quantifiable aspects of the business. It's still okay to not be profitable if you keep on reinvesting into growth, however if this is the case investors might want you to showcase a proposed path to profitability. Investors care about metrics such as CAC/LTV, Cohorts analyses, and other non-vanity metrics you use for growth and retention.
Late Stage
For late stage startups the funding usually exceeds $50M and has no ceiling. At this point, the capital is mostly raised for either IPO preparations, or acquisition. Investors consist usually of late-stage VCs and hedge funds and they are looking for:
Governance structures
High revenues with proven profitability
A clear plan for the future IPO/acquisition
Late-stage funding is mostly just preparation for the exit the company chooses.
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lovely summary!