Funding Round

Also known as: Financing Round, Seed Round, Series A, Investment Round, Yatırım Turu

In short

The process by which a company raises financing from new investors at a set valuation, usually through a capital increase; referred to as pre-seed, seed, Series A and later rounds.

A funding round is the process by which a company raises money from new investors at a set valuation to finance its growth. Rounds are named according to the company’s maturity.

Stages

Pre-seed: The idea or first product stage; investors are mostly founders, family and angel investors.
Seed: The product is on the market and the first customers have been won; angel investors and early-stage funds step in.
Series A, B, C: Scaling stages; venture capital funds lead, and amounts and investor rights grow.
Bridge round: Interim financing between two rounds, mostly through a SAFE or convertible note.

Primary and Secondary Transactions

In a primary transaction, the company issues new shares and the investment enters the company; this is a capital increase. In a secondary transaction, the investor buys shares from existing shareholders; a share purchase agreement is signed and the price is paid to the shareholders, not the company.

Typical Process and Documents

Agreeing the key terms in a term sheet,
Due diligence,
Negotiating the investment agreement and the shareholders’ agreement,
Amending the articles of association and adopting general assembly and board resolutions,
Satisfying the conditions precedent, paying the price and registering the capital increase.

Points to Watch

Existing shareholders have a pre-emptive right in a capital increase; for shares to be issued to a new investor, the right must not be exercised or must be duly restricted. The cap table should be updated after each round, taking into account anti-dilution protection and conversion rights granted in earlier rounds.

Frequently Asked Questions

Is a funding round always carried out through a capital increase?

No. If new money is to enter the company, a capital increase is made (primary transaction). If the investor buys shares from existing shareholders, the money is paid to the shareholders (secondary transaction). Many rounds combine both.

How long does a funding round take?

After the term sheet is signed, due diligence, negotiation of the agreements and closing usually take from a few weeks to a few months. The process takes longer if Competition Board or sector-specific approval is required.

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