In most cases one investment agreement does not provide the startup with sufficient funds to finance its whole development process. In practice, when reaching the next stages of development, which is usually associated with increasing financial needs, the startup attracts more investors (and / or signs subsequent contracts with previous investors – follow-on investment).
The sequence of attracting new investors and signing subsequent investment agreements is divided into stages called rounds. This division is approximate and conventional rather than strict.
The pre-seed round – a period in the startup’s development when both the technology itself and the business model are under development. During this period, external sources of funding, sometimes treated as separate rounds, are: “family and friends” and business angels.
Seed round – at this stage the business model is much more refined, the existence of market demand has been confirmed, a prototype exists, a team exists. Business angels and specialized seed funds invest at this stage.
Round A – is the first round when venture capital funds are interested in startups. At this stage, the startup has already completed its experimental stage of development. The product and the tested business model already exist, and the challenge is to scale up the business.
Rounds B, C etc. – have a similar purpose as round A – further increasing the scale of operations. Among investors, apart from venture capital funds, some less risk-prone entities may appear.