It is the concept in vogue among startups. All of them are trying, with greater or less success, to get money from investors, and a funding round is precisely one of the ways to do this.
In recent years, it has become the “preferred” form of funding for startups. Funding rounds have become real “lifesavers” for many companies, which would never have seen the light of day without them. According to the Businessinfact website, this process consists of the company concerned raising money from investors. This means new partners enter, acquiring part of the company’s share capital and, consequently, also having control over a part of it. In return for this funding, investors expect the company to grow and succeed in order to recover, at least, their invested capital.
There are various types of funding rounds: series A, B and C. Series A is typically used the first time a startup is offered to external investors, such as a “business angel” with a lot of capital or some private investment group. Series B usually comes into play for a startup that is already profitable and that wishes to grow and expand to increase its profit margin. Finally, the next round is renamed as series C, since each new funding round takes the next letter in the series, as explained on the website startups-españolas.
But funding rounds are not only of interest to investors and companies, but also to employees.
According to Techcrunch, startups often attract potential employees by offering a part of their remuneration in stocks. If the company is acquired by another company or starts to be listed on the stock exchange, its stock can become worth a lot of money, depending on the company’s valuation. Normally, the company’s value increases progressively and, therefore, also its stocks package. This “money” does not become real until a purchase by a third party or an IPO occurs, but many startups allow their employees to sell their stocks on the secondary market, based on the latest company valuation. However, there are risks. If the startup goes bankrupt its employees will not receive the money corresponding to their stocks.