Pre-Series A Capital
The startup ecosystem has given rise to some interesting terminology. Unicorns used to be mythical creatures, now they are young companies who are valued at over a billion dollars. Pre-Series A (Coined in 2013 in US, Indian entrepreneurs adopted it in 2015) is typically defined by entrepreneurs as a mid-round between seed and Series A.
Pre-Series A is crucial for startups in the Indian context as the bar set for Series A is at an all-time high.
Multiple startups in the same vertical raise angel round but only few (approx 10 per cent) will have metrics to drive Series A. Such startups often raise bridge round with existing or new angels and term it ‘pre-Series A’.
How Funding Works
- Before exploring how a round of funding works, it’s necessary to identify the different participants.
- First, there are the individuals hoping to gain funding for their company. As the business becomes increasingly mature, it tends to advance through the funding rounds; it’s common for a company to begin with a seed round and continue with Pre-Series A round (if unable to raise Series-A round).
- On the other side are potential investors. While investors wish for businesses to succeed because they support entrepreneurship and believe in the aims and causes of those businesses, they also hope to gain something back from their investment.
- For this reason, nearly all investments made during one or another stage of developmental funding is arranged such that the investor or investing company retains partial ownership of the company.
- If the company grows and earns a profit, the investor will be rewarded commensurate with the investment made.
- Before any round of funding begins, analysts undertake a valuationof the company in question.
- Valuations are derived from many different factors, including management, proven track record, market size and risk.
- One of the key distinctions between funding rounds has to do with the valuation of the business, as well as its maturity level and growth prospects. In turn, these factors impact the types of investors likely to get involved and the reasons why the company may be seeking new capital.
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