The fundraising stages are not about dollar amounts, they are about risk.

For a quick ranking boost, consider “What’s the biggest risk right now and how can I eliminate it?”

You’ve probably already heard of Pre-Seed, Seed, Série A, Série B, etc. These designations aren’t usually very helpful because they aren’t clearly defined: we’ve seen very small Series A rounds and previous Grand Rounds. The defining characteristic of each round is not so much how much money changes hands, but how much risk the venture carries.

There are two dynamics at play during your startup journey. Understanding them and the connection between them will help you better understand your fundraising journey and think about each part of your initial journey as it evolves and develops.

In general, funding rounds are as follows:

The 4 F’s: Founders, Friends, Family, Fools: This is the first money that comes into the company, usually enough to test some major business or technology dynamics. Here the company is trying to build an MVP. You will often find angel investors with different levels of experience in these rounds.
Default: Confusingly, this is usually the same as above, except that it is run by an institutional investor (i.e., a family office or venture capital firm that focuses on early-stage companies). This is not typically a “price round”: the company has no formal valuation, but the money raised is in a SAFE or convertible bond. At this stage, companies usually do not generate revenue yet.
Seeds: These are typically institutional investors who invest large amounts of money in a company that is starting to show some of its momentum. The startup will have some aspects of its business up and running and may have some test clients, a beta product, an MVP concierge, etc. You will not have a growth engine (i.e. you will still have no way of acquiring and retaining clients). The company is actively developing products and trying to adapt the product to the market. Sometimes this round is priced (meaning investors negotiate a valuation of the company) or it can be unpriced.
A series: This is the first “growth round” that a company proposes. Typically, you have a product in the market that adds value to customers, and you’re well on your way to a reliable, predictable way to spend money on customer acquisition. The company may be about to enter new markets, expand its product offerings, or enter a new customer segment. A series A round is almost always “priced” and gives the company a formal rating.
Series B and beyond: In Series B, a company often takes to the races seriously. You have customers, revenue, and a stable product or two. Starting with the B series, there are the C, D, E series, etc. The rounds and company get bigger. The final rounds usually prepare a company to be in the black (be profitable), go public through an IPO, or both.

With each round, a company becomes more and more valuable, in part because it gains a more mature product and revenue as it discovers its growth engines and business model. The company is also evolving in other ways: risk is decreasing.

This last part is critical to how you feel about your fundraising journey. Your risk does not decrease as your business becomes more valuable. The company becomes more valuable as the risk decreases. You can use this to your advantage by framing your fundraising rounds so that the more “ominous” things in your business become explicitly less risky.

Let’s take a look at where risk arises in a startup and what you as a founder can do to eliminate as much risk as possible at every stage of its existence.

Where is the risk in your company?

Risk comes in many shapes and sizes. If your company is in the ideation stage, you may know of some co-founders who are suited to the startup market. You have determined that there is a problem in the market. All your initial interviews with potential clients agree that this is a problem worth solving, and theoretically someone is willing to pay to solve it. The first question is: is it possible to solve this problem?