Digital transformation is not just disrupting business models — it is disrupting investments, too. Conventionally, companies avoided frequent fundraising rounds because of the complicated documentation works that took months to complete. But now, online investment platforms enable companies to raise funds salami style. Legal tech platforms are replacing crowdfunding, helping businesses to quickly raise funds from their professional network. The sophisticated databases enable companies to make precise data-driven decisions making them independent of advisers and consulting companies. Such advancements have spiced up investment rounds in 2017 and 2018, especially Series C later rounds. In this article, we discuss six such interesting startup funding rounds and the difference between the various series of funding rounds.
Series A, B, C and so on: What’s the difference?
The difference between the series of startup funding rounds depends on the company’s maturity level, the purpose of raising funds, and the types of investors. Funding rounds start with seed funding followed by Series A, B, C and the later.
Seed capital is used to nurture the idea of the startup, create a workspace, build a team and launch the product at a target audience. In general, seed capital roughly amounts from $500,000 up to $2 million. The key players in seed round are risk-takers. Mostly early-stage venture capital firms and angel investors dabble in this round of funding. Series A funding is hosted to optimize the business model after it witnesses a decent reception in the market. Series A funding typically raises from $2 million to $15 million.
Usually, Series A investors come from traditional venture capital firms. The most popular ones include Sequoia, Greylock, Accel, and Benchmark. Series B rounds focus on taking companies to the next level, past the developmental phase. Series B capital ranges between approximately $7 million to $10 million. The key players involved in Series B are similar to those of Series A. Series B is just an addition in the number of investors.
The later series of startup funding rounds are less risky as they are about scaling and perfecting an already established business. Popular investors include investment banks, hedge funds, private equity firms, and secondary market groups. Companies raise hundreds of millions in the final rounds. The investment is mostly used to acquire other firms and expand the business. Here is a list of six such giant funding rounds of 2017 and 2018.
1. Magic Leap
Magic Leap is a Florida based IoT startup that focuses on wearable technology. Launched in 2011, the company aims to create goggles that would replace smartphones and PCs. The mixed reality glass maker raised $502 million in equity funding. This takes the company’s total equity investments to $1.9 billion before even the company has launched its first product.
Founder Rony Abovitz compares the goggles to the ones in the Harry Potter books. The glasses will be a hyper-personal device that would mix rich graphics into the physical world. The company is building all the required components right from the processor to the minor optical components. The company is being very secretive about its product features. In fact, all these years, the prototype was shown only to a few potential investors under a strict nondisclosure agreement.
The California-based ride sharing giant, well past its startup phase, has raised $500 million from a funding round that it conducted in August 2018. Joining hands with Toyota Motor Corp., Uber is working vigorously on driverless ride-hailing services. The funding has enabled Uber to hit a $62 billion valuation. Uber has raised more than $21 billion in funding so far.
Uber witnessed some losses after its recent investments in Uber Eats failed to gain momentum. Uber acquired JUMP for $200 million. Though the $62 billion increase has indicated the company’s recovery from the recent losses, it still hasn’t backed up its loftiest valuation of $69 billion. However, Uber has thus far been more focused on growth than profitability, and its funding shows that investors see a lot of growth potential ahead.
Slack raised $427 million in its latest funding round in August 2018 and has hit a valuation of $7.1 billion. That’s a major increase when compared to its $5.1 valuation after its fundraising in September 2017. General Atlantic and Dragoneer Investment Group led the funding round, which had the participation of T. Rowe Price, Baillie Gifford, Wellington Management, Sands Capital and a few other existing investors.
Since Slack rolled out its messaging app four years ago, its popularity has skyrocketed. The product currently has over 8 million daily users and 3 million paid users across the world. Even before the latest funding round. Slack was among the most valuable venture capital-backed companies in the United States. With the new funding round, the company solidifies its spot among the top 10.
Helix is a California-based biotechnology startup that focuses on personal genomics. In March 2018, Helix raised a $200 million investment on the series B funding round. The company focuses on DNA sequencing and connects people with the insights into their DNA. Helix’s product is specially made for health-conscious parents and ancestry enthusiasts. Helix helps parents become aware of the conditions they might pass on to their children.
Although all humans have a different DNA sequence, 99.9 percent of all of us are identical. DNA is like a cookbook of the recipe of an organism and the biotech is doing all the heavy lifting to find out how DNA encodes into life. The global DNA sequencing market is estimated to hit $22 billion in the next seven years. This estimation gives Helix a promising opportunity to dominate the quickly expanding niche. But then the company will have to overcome certain challenges like concerns about privacy and data security.
Eventbrite raised $134 million from its latest funding round in 2017. Since 2006, Eventbrite has collected $332.3 million over 9 funding rounds. This includes a debt funding that helped the company raise $1.5 million in 2008. Though the company generated a net profit of $201.6 million in 2017, operating expenses and losses left the company unprofitable.
The company witnessed a net loss of $38.5 million last year and the loss has amounted to $15.6 million till date. So the company will probably use the new funds to recover the recent losses. The event planning company recently filed an initial public offering for $200 million. Eventbrite also has plans of going public later this year and plans to raise $200 million, but is yet to announce the price per share.
With the $85 million funding in 2017, Quora just joined the unicorn club with a net worth of $1.8 billion. The funding actually doubled Quora’s valuation from $900 million after its $80 million round in 2014. The funding round was co-led by Y Combinator’s Continuity Fund and Collaborative Fund.
It is evident that Quora focuses more on users than monetization because it went 8 years without fully-available ads products. Quora plans to use its funds for internalization eventually enabling users to translate content. In the recent years, Quora is attempting to spread its wings to different languages. Last year Quora launched in Spanish, French is in the beta stage, Italian and German are coming in a few months. The company aims to get into all the major languages within two years.
First-half startup funding rounds scorecard
There was a slight decline in the quantum of funding rounds during the first half of 2018 compared to the first half of 2017. Investments stood at $6.8 billion in H1 2017 but have dropped to $6.1 billion in H1 2018. Though it is a 10.5 percent drop, experts believe that the decline is not drastic. This is because the number of deals increased to 465 vs. the 449 of last year. Some entrepreneurs who find valuation a challenge choose to pick the debt financing route. As a result, debt financing in H1 2017, stood at $631.65 million and went up to $1.15 billion in the H1 2018. Overall, startup funding in 2018 seems to hold momentum despite a minor dip. With a good quarter or more left, it’ll be interesting to see who the big movers and shakers will be as we wind down to the end of 2018.
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