HSBC Malaysia recently launched a first-of-its kind fund, the “HSBC New Economy Fund” worth RM500 mil. This will be made available to start-ups that have reached a Series B stage and have shown demonstrable growth, measured through the quarters, and want to continue tapping into the digital economy.
Series A, B, and C are funding rounds that generally follow "seed funding" and "angel investing," providing outside investors the opportunity to invest cash in a growing company in exchange for equity or partial ownership. Series A, B, and C funding rounds are each separate fund-raising occurrences. The terms come from the series of stock being issued by the capital-seeking company.
Source: https://www.loanspot.ng
Before any round of funding begins, analysts undertake a valuation of the company in question. Valuations are derived from many factors, including management, growth expectation, projections, capital structure, market size, and risk.
Investors each have their own method for evaluating a business, but many use some of the same factors:
• Market size: The size of the market the business is in, in dollar value
• Market share: How much of the market the business makes up, like 0.10% of the overall market
• Revenue: An estimate of how much the company made and will make. This is market size multiplied by market share.
• Multiple: Generally an estimate used by the investor to give them an idea of the business's value, like 10x or 12x the revenue
• Return: The increase in value, in percent form of how much is invested, based on estimates of growth in market share, market size, and revenue.
The earliest stage of funding a new company comes so early in the process that it is not generally included in the funding rounds. Known as "pre-seed" funding, this stage typically refers to when a company's founders get their operations off the ground. The most common "pre-seed" funders are the founders, close friends, supporters, and family.
Seed funding is the first official equity funding stage. It typically represents the first official money a business venture or enterprise raises. Some companies never extend beyond seed funding into Series A rounds or beyond.
The first round after the seed stage is Series A funding. The term gets its name from the preferred stock sold to investors at this stage. In this round, it's important to have a plan for developing a business model that will generate long-term profit.
Typically, Series A rounds raise between $2 million and $15 million, but this number varies due to many circumstances.
Series B rounds are about taking businesses to the next level, past the development stage. Investors help start-ups get there by expanding market reach. Companies that have gone through seed and Series A funding rounds have already developed substantial user bases and have proven to investors that they are prepared for success on a larger scale. Series B funding is used to grow the company so that it can meet these levels of demand.
Businesses that raise Series C funding are already quite successful. These companies look for additional funding to help them develop new products, expand into new markets, or even acquire other companies. In Series C rounds, investors inject capital into successful businesses in an effort to receive more than double that amount back. Series C funding focuses on scaling the company, growing as quickly and successfully as possible.
The typical number of seed rounds a company goes through before completing an initial public offering (IPO) is three. However, no set number of rounds must be used to raise funds.
Many companies will complete an initial public offering (IPO) after their Series C funding round. However, other companies may need to continue using fundraising rounds to expand or grow.
Series D funding is the fourth stage of fundraising that a business completes after the seed stage. The initial round of funding after the seed stage is Series A. The second is Series B, and then the third is Series C.
Understanding the distinction between these rounds of raising capital will help you decipher start-up news and evaluate entrepreneurial prospects. The different funding rounds operate in essentially the same basic manner; investors offer cash in return for an equity stake in the business. Between the rounds, investors make slightly different demands on the start-up.
Company profiles differ with each case study but generally possess different risk profiles and maturity levels at each funding stage. Nevertheless, seed and Series A, B, and C investors all help ideas come to fruition. Series funding enables investors to support entrepreneurs with the proper funds to carry out their dreams, perhaps cashing out together down the line in an IPO.
References:
Series Funding: A, B, and C, Nathan Reiff, Investopedia.com, updated 15 July 2023
HSBC Malaysia launches RM500mil startup fund, Lydia Nathan, The Star,
13 September 2023
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