Cooking costs money. In order to grow, you must first dare to invest. Many start-ups go on to raise external capital at some point, often several times. We take you through FFF, angel investors and VCs. Along (pre-) seed funding and A-, B- and who knows even C-rounds.
Start-ups can grow in two ways. You can bootstrap: grow purely on the money your customers bring in. According to a Vlerick study, 4 out of 10 scale-ups in Europe have grown in this way. Or you can attract outside investors to boost your growth. In one or more capital rounds, you then go in search of external capital. We list those rounds (chronologically).
This very first round, at the very beginning, is sometimes forgotten in the cycle of capital rounds. Here your start-up is still nowhere. You have no staff, no product and no customers. Just a thought. But you need money to build a first prototype or a first proof-of-concept.
Because you have nothing to show outsiders yet, let alone to convince them to invest in your start-up, pre-seed funding often comes from so-called FFFs: friends, family and fools . All in all, most start-ups only need a few ten thousand euros. Just enough to get the ball rolling.
To harvest, you must first sow. The seed round is still done at an early stage. Now your start-up is raising money to turn that first prototype into an MVP, a minimum viable product that you can market to get your first customers. In this phase, you cannot yet present concrete results, so your investors have to rely on your team and on the potential of your product and your earnings model.
In seed capital, it is often the so-called angel investors who take the lead. Although crowdfunding is gaining popularity and some investment funds and VCs are getting on board now, before the competition gets too big in the next phase. The average amounts in a seed round vary between EUR 100,000 and EUR 1 million.
Series A or A round
By an A round, your start-up has already gained traction. You can present investors with measurable KPIs: number of users, loyalty, churn rate, turnover, of course.. You convince investors with a business plan that can increase your sales exponentially. For example, if you want to raise 1 million euros, you will realise a turnover growth with that capital that is much higher than that 1 million.
The amounts raised in an A round vary, from 1 million to 5 or 6 million euros. Usually a Series A is led by one venture capitalist. VCs are also showing a growing interest in A-rounds or early stage investments. Because of the growing competition between investors, they don’t want to risk waiting too long and missing out on, say, the new Airbnb.
In the start-up world, the ‘Series A crunch‘ is a household name. It means that in this round, a lot of start-ups are running out of capital. After the seed round, they now need to have hard KPIs on the table, which also prove their scalability. Not all start-ups succeed in this.
Series B or B-round
In a Series B, the amounts invested increase significantly, towards 10 million euros or even more. Often it’s the same VCs from the A round who are ramping up their investment here. In this phase, start-ups want to tap into new markets or appeal to new target groups.
The investments go not only to technology, but also to people. The founder team needs to be reinforced with solid profiles that often require an equally solid salary. From a Series B upwards, start-ups have often had to relocate abroad in the past. But in recent years more and more money has become available in the Belgian VC world, so there are also many opportunities in our country for extremely ambitious start-ups that want to raise a lot of capital.
Series C or C round
If your company ever starts a Series C (and there aren’t very many like that), you’ve already outgrown the start-up phase. You want to build and launch a new product, or even take over a competitor already. For a Series C, we are talking about a capital injection of a few tens of millions of euros.
Scale-ups that make it to Series C already have a record to show for it. This is attracting the attention of a new group of investors: institutional investors with a thick portfolio who shun risk and opt for scale-ups with a high chance of a successful exit.
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