What is a Funding Round?

A funding round is a fundraising event in which a company raises capital from one or more investors to finance its business, growth, or other objectives. The form of financing may depend on the stage of the company and may be made either in the form of equity financing, convertible financing, or some other type of investment.

Startup companies use several rounds of financing during their growth period, including pre-seed, seed, Series A, Series B, Series C, and others. Every round of financing has its own purposes, set of investors, valuation, and terms.

Key Terms Used in an Investment Round

• Pre-money valuation: The valuation of the company before taking into account the investment that is about to be made
• Post-money valuation: The value of the company after the investment has been taken into consideration (pre-money valuation + investment)
• Dilution: The decrease in the percentage owned by current shareholders due to issuance of new shares to new investors
• Term sheet: A letter of intent that outlines the terms of investment before writing any actual documents for a deal
• Lead investor: The investor who defines the terms of the deal and puts down the biggest cheque
• Cap table: The document indicating who owns what percentage of the company

Important Factors in Fundraising a Round

• Valuation: A valuation that is too high can make future fundraising difficult if the company cannot grow enough to justify a higher valuation in the next round. A valuation that is too low may result in unnecessary dilution for existing shareholders. 
• Investor fit: Appropriate investors not only provide funding, but also valuable knowledge, relationships, and reputation for future rounds of fundraising
• Dilution control: Each new round brings dilution for existing stockholders; therefore, there is a balance between how much money to raise and how much equity to give up
• Round timing: Fundraising too soon can have bad terms; fundraising too late can result in running out of money before closing the deal
• Compliance with legislation and regulation: Fundraising activity should comply with securities law requirements (using such exemptions as Regulation D in the US)

Want Help With Your Finance and Business Operations?

Atidiv helps growing businesses streamline finance and accounting processes with reliable, technology-enabled solutions designed around their unique needs. With expertise in accounting support, financial reporting, back-office management, and process improvement, our professional team can help you achieve greater precision and efficiency across your business’s financial operations.

If you need assistance with simplifying accounting, improving your financial processes, or scaling your operations, Atidiv can help. Contact our team to see how we can help you with our finance and accounting services.

Talk to our expert!