Fundraising Stages for Startups in Australia
Fundraising Stages for Startups in Australia
The primary fundraising rounds and typical $ amounts for startups in Australia
The venture capital ecosystem in Australia is vast and diverse, with many investors in different focus areas. In this article, we will break this down and clearly explain the various funding stages Australian startups go through and which investors focus on each stage.
Early-Stage Startups -
If you're starting out fundraising or have raised a little capital, your startup is categorised as early-stage. Rampersand primarily focuses on this stage. To learn more about how we invest, head here.
The primary fundraising round names include:
Angel/Family and Friends
Pre-Seed
Seed
Pre-Series A/Late Seed/Seed Extension
Series A
Series B
The differences between each stage are pretty murky, given the various funding paths a startup can take early in its journey.
Here is a non-definitive guide to understanding the differences between each stage.
😇 Angel Investors/Family and Friends
Investors
Family and Friends: Individuals from the founder's personal network who believe in the vision and potential of the business.
Angel Investors: High-Net-Worth individuals, successful startup founders, operators, and occasionally later-stage VCs investing personally.
Purpose
The primary goal of this round is to develop and validate early business hypotheses, identify and recruit co-founders, and begin building a Minimum Viable Product (MVP). This phase often involves a lot of experimentation and pivoting as the business model is refined.
Size of Round
Angel rounds are relatively small, typically between $20k and $300k. Contributions from family, friends, or angel investors can vary widely, generally falling between $5k and $100k per investor.
💡 Pre-Seed Stage
Investors
Pre-Seed Funds: In Australia, there are dedicated Pre-Seed funds and other early-stage VCs like Rampersand
Angel Investors and Syndicates: High-Net-Worth individuals, successful entrepreneurs, and syndicates run by angel investors
Purpose
The pre-seed stage is the first formal round of funding, where founders typically quit their jobs to focus on their startups full-time. Different investors have varying thresholds and requirements for pre-seed financing. At Rampersand, we are open to discussing ideas at any stage, even if they are just on paper. Other investors may expect a Minimum Viable Product (MVP) launch to gather user feedback and prove that the problem addressed is significant and valuable to the target customer base. Revenue or user traction is only sometimes necessary at this stage, as investors are primarily betting on the team and the market potential.
Size of Round
Pre-seed investment rounds are generally small, ranging from $100k to $2M. They can involve one or more pre-seed funds like Rampersand, angel investors, and syndicates. The objective at this stage is to validate early hypotheses regarding the right product, go-to-market strategy, and problem set.
Example of Pre-Seed funding in the Rampersand portfolio:
🌱 Seed Stage
Investors
Early-stage Funds: Dedicated funds that specialise in early-stage investments.
Angel Investors: High-Net-Worth individuals and successful entrepreneurs.
Purpose
Once some early hypotheses are validated, startups typically raise a seed round. They should have a product in the market and customer feedback at this stage. The level of traction required depends on the type of business. For example, a consumer app might have a few hundred thousand users, while a B2B business might have 2 to 3 enterprise customers in a pilot program. The primary goal of the seed stage is to generate more substantial traction and move towards finding product-market fit before pursuing a Series A round.
Size of Round
Seed rounds usually range from $500k to $5M. These rounds aim to provide the necessary capital to help the startup gain significant traction, further develop the product, and refine the business model in preparation for more substantial investments in subsequent funding rounds.
Examples of Seed Funding raises in the Rampersand portfolio:
🤝 Pre-Series A/Late Seed/Seed Extension
Investors
Existing Investors: Current investors who may participate in internal rounds.
External Investors: Other seed or early-stage funds who might have passed at the last round for not having enough traction
Purpose
This stage represents a grey area between Seed and Series A, often characterised by significant progress, but more is needed to justify a Series A round. It is not a necessary round for every startup but does exist for those needing additional time and resources to meet Series A expectations. Series A investors typically look for specific metrics around revenue, engagement, and retention, as well as a repeatable go-to-market sales strategy or other performance indicators. Raising a post-seed round provides the opportunity to surpass these benchmarks, demonstrating further growth and readiness for Series A funding.
Size of Round
Pre-Series A/Late Seed/Seed Extension rounds can range from $1M to $5M. These rounds can be internal, involving only existing investors, or include new external investors. The primary goal at this stage is to gather more evidence and data to prove that the company is on the right track for a successful Series A round, solidifying the business model and showing substantial progress.
Examples of Pre-Series A funding in the Rampersand portfolio:
⭐ Series A
Investors
Series A + VC Funds: In Australia, there are a handful of Series A VC Funds
Existing investors: Current investors may participate by taking their pro-rata share in the round
Purpose
Once a startup has achieved product-market fit, it’s time to raise a Series A round. At this stage, you should have proof that your initial product strategy has been successful and that you can capture a significant portion of the market with a repeatable go-to-market (GTM) strategy. Startups usually have at least $1M to $3M in revenue by this point. The Series A round aims to scale the business, expand market reach, and refine the product and business model.
Size of Round
Series A rounds are typically larger, ranging from $4M to $10M. In some cases, particularly in hot sectors, startups can raise upwards of $50M for their Series A. Most existing investors will participate by taking their pro-rata share, but they usually do not lead the round. Therefore, securing a new lead investor and possibly other external investors is necessary to complete the round. The primary goal is to provide the capital needed for significant growth and to position the company for future funding rounds.
Examples of Series-A funding in the Rampersand portfolio:
🌟 Series B+
Investors
Later-stage VC Funds: These funds typically have larger fund sizes and will invest across multiple funding rounds. In Australia, these include Five V Capital or OneVentures.
Existing investors: Current investors may participate by taking their pro-rata share in the round
Purpose
As your startup scales, the capital required to scale your business increases. Later-stage investors typically have $1B+ funds and can invest heavily across multiple fundraising rounds. This capital is generally used to scale GTM and to invest in building future products/features to increase the business's TAM. Startups usually have $7M+ annual revenue.
Size of Round
Series B rounds range from $15M to $50M. Depending on the capital intensiveness of the business, Series B startups can raise upwards of $100M. Depending on the size of the Series A investor, they may choose to lead the Series B round alongside other external investors.
At the start of your fundraising journey, each stage should be delineated based on your business's core risks. Rather than anchoring to the nomenclature of each round, you should look to systematically derisk your business and raise capital in line with this.
If you're unsure of where you stand amongst the various stages and what you should focus on, please reach out to us. We're happy to help you with your fundraising process and answer any of the more challenging questions you might have.
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