Why do we still have a myriad of confusing names for funding rounds in the private market? Each day we read about early-stage rounds labeled “friends and family,” “angel,” “seed,” “seed extension,” “seed prime,” “gap,” and “Series AA” just to name a few. And what exactly qualifies as “Series A” these days?
The public market does not label rounds these ways. The first issuance of stock to the public is called a “Primary Offering” or “IPO.” The selling of additional shares is called a “Secondary Offering.” Additional secondaries aren’t labeled goofy names like “Secondary A” or “Secondary Extension.” They are just called “Secondaries” for the rest of the public company’s life.
The dynamic changes to the private market landscape over the last five years have rendered today’s funding round labels meaningless:
- AngelList’s platform now enables accredited investors to participate in syndicated deals from “Super Angels” alongside large vc funds that were never before possible.
- Newer micro vc funds now overlap with larger vc funds across numerous funding stages.
- Some companies are raising large convertible note “seed” rounds ($5M+) early in their life that would normally be called a Series A.
- Other companies are raising smaller inside “extension” rounds even though the market would support a traditional A round.
- Some Series B/C rounds these days can resemble what was traditionally an IPO raise (Snapchat earlier this summer raised $60M in their B, while Amazon raised $54M in their May 15, 1997 IPO).
A flatter information flow has given greater liquidity and access to both founders and investors, and this is great for the industry. Size and/or institutional presence can no longer properly label a round.
So here’s a proposal to simplify the labeling of private company rounds:
- Friends and Family — I love this term and want to keep it to describe the first money in a company. The name describes the support and community behind the founding team at a time when they are most likely the only people to financially support the idea. The cash-in at this stage isn’t about IRR — it’s about saying, “We’re behind you no matter what the result!” Let’s not lose sight of the foundation on which companies are built.
- Prime A — The “Series A” round has always meant something important, but the emergence of all these “seed” monikers has gotten confusing, so let’s blend the two into something simple. “Prime” is a root of “Primary,” and rather than come up with some other new term, it seems to be an appropriate, shorter name. Also, “IPO” is generally used today more than “Primary Offering,” so the ballyhoo of the “IPO” term will continue, and any confusion between “Prime” and “Primary” will be minimal (258M Google results for “Twitter IPO Offering” vs 45M results for “Twitter Primary Offering”).
- Prime B, C, D, E, F+—Every subsequent round after Prime A will follow the logical alphabetic extension. Investors and founders only care about the size and valuation of each subsequent round, as shown on a cap table, and the letter system quickly tells everyone the number of rounds the company has raised.
No pride of authorship here. I’m merely trying to clean up the cornucopia of meaningless funding names we use today. If there are better thoughts out there, let ‘em fly.
And then I’ll never have to say we participated in a Super Seed Prime Angel Extension round again.
Recipients of this post are not to construe it as investment, legal, or tax advice, and it is not intended to provide the basis for any evaluation of an investment in any fund. Prospective investors should consult with their own legal, investment, tax, accounting, and other advisors to determine the potential benefits, burdens, and risks associated with making an investment in any fund.
