Welcome to LEAPtionary, where we explain the concepts mentioned frequently in the entrepreneurship ecosystem. In the second series of LEAPtionary, we will examine the types of investment rounds. The stages and characteristics of investment rounds may differ by region.
Pre-Seed Stage: At the pre-seed stage, entrepreneurs often use their own savings and capital to develop their products and business ideas, or they may receive small amounts of investment from family & friends & friends. They may also receive mentoring, consulting and financial support from angel investors and private or state-funded accelerator and incubator programs. In the first article of the LEAPtionary series, we introduced angel investors, accelerator programs and incubators.
For startups, the pre-seed stage refers to the pre-revenue, pre-customer and even pre-market-product fit era. Although venture capital funds do not prefer to take part in this stage, they may support the success of entrepreneurs they know from previous ventures and circles, especially from business life, and they may prefer to join their journey with smart capital by getting involved in their success journey at an earlier stage.
Fun Fact: Northzone’s investment in Spotify’s success story is a suitable example of VCs taking risks and getting involved in the pre-seed stage when they find the right team and startup. Northzone VC fund manager Pär-Jörgen Pärson, who had previously worked with Spotify founders Daniel Ek and Martin Lorentzon at different companies, decided to invest in Spotify, which was deemed unlikely to succeed due to the state of the music industry at that time. Northzone had a 5% stake when Spotify went public at a valuation of $29.5 billion.
Seed Stage: At the seed stage, the entrepreneur seeks seed capital to realize their business idea. Angel investors and venture capital firms usually invest at this stage. In our country, companies that receive investment at the seed stage are expected to have acquired customers and generate revenue, while profitability may not be prioritized in the decision-making process depending on the investment thesis.
Series A Stage: Startups seek larger amounts of investment in the series A stage. At this stage, investments are usually made by venture capital firms. In some cases, institutional investors and private equity funds may also be involved in Series A investments. Startups should seek a Series A round, when they have established their business plans, acquired global customers and defined go-to-market strategies for different markets.
Series B, Series C and Series D Stages: At Series B, C and D stages, venture capital firms, private equity firms and large-scale institutional investors usually invest in startups. In these stages, the startup receives larger amounts of investment for further growth and expansion. Exit strategies such as an initial public offering (IPO) or acquisition may also be options to raise funds.
Bootstrapping: This is when the entrepreneur funds the company’s operations without receiving any investment and giving away shares in the company. The entrepreneur uses the revenues from the company’s operations and personal financing.
Fun Fact: GoPro’s story is a good example of a bootstrapped startup. Before Foxconn invested $200 million, Nick Woodman ran his company’s operations using money borrowed from his mother, cash coming from selling his van when he moved in with his family, and his personal savings.