Mads Jensen explains what each startup funding round from pre-seed to Series F is for, why the stages matter when choosing investors, and why seed investors often ask for revenue.
- Pre-seed funds a team with an idea to build an MVP; seed funds an MVP to prove product/market fit.
- Series A funds proving the business scales, Series B showing it can be a global leader, and Series C, D and E executing on that.
- Each stage has different jobs to be done, so investors who are great at one stage may not be best for another.
- Investors often ask for revenue at seed because it is a common, if imperfect, indicator that the MVP is real and pre-seed is complete.
“the names for funding rounds have lost their meaning”.
..became a common complaint when seed rounds were done at $100m pre-money.
And there was some truth to that. But we’ve seen the correction.
And at the heart of it, the naming conventions for venture capital rounds are still quite clear.
Why do we need to name rounds at all? Isn’t it all just about “money going into startups”?
Yes and no.
A pre-seed company is to a growth stage company what a bicycle is to a 787. Modes of transportation. But otherwise, not very similar.
The “jobs to be done” are completely different. And investors that are great at supporting one stage may not be the best for another stage.
The naming framework
This framework still captures the essence:
- Pre-Seed – have idea and founders. Need to develop an MVP.
- Seed – have MVP. Need to evidence product/market fit
- Series A – have evidence of product/market fit. Need to develop proof that it scales.
- Series B – have proof that it scales. Need to show that it can be a global leader.
- Series C/D/E – it can probably be a global leader. Now it’s “execute and take over the world”-time.
- Series F – Possibly got in over our skis, but a bit late to drop it now.
Of course, there are individual differences. But this is a helpful framework to fall back on.
Because, yes – the stages are different. But these funding rounds are ultimately just about money going into startups. So make sure you find the right partner that supports your stage. So you can get funded and get back to the real work of building a great company.
Note: it sometimes confuses founders when investors ask for revenue for a seed round, even if the founders feel they have an MVP. The reason is simple. Investors are not always good at assessing whether an MVP really is an MVP. So they use revenue as an indicator. It’s not perfect, and it’s not the only way. But it is a common way to see whether the pre-seed phase has actually been completed and the MVP is ready.
Frequently Asked Questions
What is the difference between pre-seed and seed funding?
At pre-seed a company has an idea and founders and needs to develop an MVP. At seed it has an MVP and needs to show evidence of product/market fit.
What is a Series A round for?
A company raising a Series A already has evidence of product/market fit and needs to develop proof that the business scales. Proof of scale then leads to a Series B, aimed at showing it can be a global leader.
Why do investors ask for revenue at the seed stage?
Investors are not always good at judging whether an MVP really is an MVP, so they use revenue as an indicator that the pre-seed phase has been completed. It is not perfect or the only way, but it is common.