This is an answer to a Quora question. I’m planning to post my answers to Quora questions on a weekly basis.
The venture industry is changing and the nomenclature used to finance rounds has changed along with it. This is actually leading to some confusion in the the marketplace as to what’s expected for each stage. I’ve blogged about new nomenclature and the funding process a startup should follow.
For this answer I’m assuming a Series A round of which $3mm to $7mm of new capital raised. Ideally, you will want a larger institutional VC firm to lead the round. Most early stage VC firms who are considering leading at this level will have a minimum check size in order to meet equity hurdles and get enough capital to work. Although it varies firm to firm, most +$100mm early stage firms have a minimum check size of $3mm and greater. This typically means that your lead is taking at least two-thirds of the round.If you are raising a sizable Series A you probably had a group of seed investors who helped you build the business to this point. These are your angels, professional angels and seed funds. Most Series A investors will leave room for the seed investors, who are deemed to be “major investors”, (major investor qualifications are in your deal docs) to participate in A round. Since you probably have a new lead, the seed investors won’t be doing their full pro-rata share. What gets set aside for the seed investors is always a point of discussion when putting a round together.