In this article, we want to help you understand what stage your startup is at. This may sound very simple, but we’ve met many startups that think they’re at one stage when they’re actually at another.
In short, this article will teach you:
- What is the early stage?
- The difference between pre-seed and seed
- Investment amounts by stage
What is the early stage?
This topic causes a lot of confusion. If you ask a founder, they’ll probably tell you that a startup with an idea, an MVP, or at the pre-seed or initial stage is early-stage. However, if you ask an investor, they’ll probably say anything from Seed to Series A, and some will even say Series B.
At Startuplinks, we’re not fans of the term “early stage.” Instead, we prefer to refer to each stage more precisely, as we explain below.
Startup funding stages
At Startuplinks, we propose the following investment stages for startups in LATAM. A fast-growing startup will normally spend approximately 1 year to 1.5 years at each stage. The exception is the pre-seed stage, since there are several factors that can take longer to figure out.
Pre-seed stage
Some people also call it an “angel round.” This is the stage where the startup focuses 100% on validating that a problem exists, testing some solutions, and even generating sales. The goal is to understand what core product will be built to solve the problem identified.
At this stage, the money will most likely come from angel investors and accelerators. Although some venture capital funds do invest at this stage, it’s still uncommon to find funds with the right ticket size and risk appetite to invest this early.
Average investment range in LATAM: US $75K to US $500K
At Startuplinks, we’ve seen that this is the stage where startups struggle the most, and even the stage where the most startups fail. That’s why we at Startuplinks propose the 3 pillars that startups need to master to move solidly from pre-seed to seed.
Knowledge
This means having the knowledge needed to take the project to success. This knowledge should cover the following areas:
- User
- Customer
- Market
- How a company works
- How a startup works
- How venture capital works
Team
This means having the right team to execute the startup’s vision. Key points include:
- Having a founder with a business background
- Having a founder with a technical background
- Full-time founders
Product
At this stage, the product created by the team should meet the following requirements:
- A product that solves the problem
- The right features
- Sufficient retention
Together, these 3 pillars should lead to positive results in sales or fundraising.
Seed stage
Also known as the seed round, this is the stage where it’s 100% certain that you’ll need to raise investment from venture capital funds. You’ll also most likely have angel investors involved.
It’s very likely that you haven’t found Product-Market Fit at this stage; however, you’ll start to see strong indicators that you’re getting closer.
Average investment range in LATAM: US $400K to US $5M
Late-seed or pre-Series A stage
This stage became popular during the pandemic as a way for companies to extend their runway and reach Series A with stronger metrics, without necessarily having to raise a considerably larger round than the seed round.
Average investment range in LATAM: US $1.5M to US $8M
Series A
Also known as a “priced round,” Series A marks an important milestone in a startup’s life cycle because, for the first time, the startup will have a real valuation at which investors will buy a certain number of shares.
In addition, all the company’s previously signed convertible instruments will convert into shares in this round. In other words, the fully diluted capitalization of the company’s partners will become clear.
It’s said that a startup needs to have at least US$1M in annual sales to raise a Series A.
Average investment range in LATAM: US $9M to US $30M
What is a bridge round?
Known as bridge rounds, these are investment “rounds” that startups raise between formal rounds. The goal is to raise some money to achieve certain objectives before reaching a formal round and taking on more significant dilution.
Depending on who you ask, you’ll find different ways of classifying and categorizing the funding stages a startup goes through. We encourage you to consult different biographies and resources, compare them, and find the right stage for your startup. We invite you to read the article on types of investors to continue your learning journey.