Investment Rounds - - some personal definitions
If you think the stages a company goes through in terms of investment are Series A, Series B and then IPO, you're missing a few critical steps.
A more common scenario are the following "investment" rounds, which don't always happen in this exact order.
1. Sweat Equity round. This is when you, and maybe your buddies work nights and weekends to come up with an idea, develop it somewhat, do basic research, maybe create a pre-beta version or prototype and come close to getting a divorce.
2. The Founders Have to Bleed round. This is when you talk to an investor and he or she asks "have you mortgaged your home to the hilt?" and if you say no, the investor says, "why should I risk my money when you wont risk yours? Actually getting the divorce or having to move in with your in-laws or co-founders (hey, I've had some clients use my guest room for a while) helps move from this round to other rounds. Working late at nights does not count as bleeding.
3. Friends and Family round. This is when you finally decide to ignore your promise to yourself to NEVER go to your great aunt Nellie for money. This can be an easy or difficult round. But when 3 investors say "come back with a prototype" and your lead designer says "I need to eat" it's often your only option.
4. Angel investors. These might be early stage VCs but are more likely business associates who have faith in you, suppliers or vendors or even competitors who want a piece of the action, people in your industry who can see through the risk to the potential.
5. VCs. Although many a company has reached step 2, 3 or 4 and realized, hey, we don't NEED VC funding. But often if you've not gone through steps 2, 3 and 4, the VCs are less likely to give your project a deeper look.
So the lesson is, don't scrimp on the early stages.
