US Corporate Law 20 Episodes (7)
What is VC Venture Capital? What is PE private placement? Angel investment, venture capital, seed round, A round, B round, C round, private investment, what is the relationship? What size are they usually? At what stage? Seed round and angel round who comes first?
From the first lecture to the sixth lecture, we introduced the founder's equity structure design and employee option incentives within the startup company. After the company's internal structure is set up, it is time to start to consider the issue of introducing investment. In the next few lectures, we will focus on the legal issues common to startups in the process of obtaining venture capital.
We often hear founders in the Silicon Valley area say they are looking for VCs, and we often hear VCs say they are looking at projects. What is VC? It is venture capital.
We sometimes hear people say Angel investor (angel investment), PE (private equity), and Seed Round (seed round), A round (A round), B round (B round), C round (C round) ). So what do these all mean, and what is the relationship between them and VC?
I drew a picture here, you can take a look.
1. Angel Investment
The earliest investment is angel investment. At this time, the investment usually comes from family members and friends. The less is 30,000 to 50,000, and the more is 108,000. The total investment of angel investment is generally $10,000- $250,000, on that scale.
2. Venture capital
We often say that the seed round, A round, B round, and C round are all VC venture capital. Their common feature is that startups are still in a relatively early stage with uncertain prospects, which is also a time when risks are relatively high, so why we call this stage venture capital. In addition, different from the situation of individual investors in the angel investment stage, the venture capital stage is mainly institutional investors. Even if there are individual investors, they are all led by institutional investors and followed by individual investors.
Seed round sizes are typically $500,000-$1,500,000.
A round is generally $1,000,000-$10,000,000.
Round B is generally $10,000,000-$30,000,000
The C round is generally more than $30,000,000.
Of course, what we list here for you is also a general situation. Investors all want to see the results and see the returns. In the venture capital world in the United States, it is generally about ten years after a company has reached the C round of development. At this time, a company can go public or not. It is also clear that it can be sold to other large companies, or it can be dissolved and liquidated. Of course, there are also some cases. For example, some companies develop rapidly and are acquired after the A round or the B round. There are also companies, in the cases we have done, that have raised the F round or even the O round. If it really comes to this time, the most worrying thing should be whether 26 English letters are not enough.
This place needs to clarify a concept, that is, what is the relationship between the angel wheel and the seed wheel. Because I usually find in my work that both the investor side and the project company side confuse the two concepts of seed round and angel round. Some say that it is the seed chakra and then the angel chakra, and some say that the angel chakra contains the seed chakra or the seed chakra contains the angel chakra. Generally, the investment circle in China thinks that the seed round is the smallest, while in the United States, it is generally considered that the angel round is the smallest. None of these claims can be said to be false. I can say that from the strictest division, in the documents issued by American law firms, the angel round is the smallest round, followed by the seed, which is the same as the picture I drew.
3. Private Investment
Private equity investment (PE) often invests in relatively mature projects, and the technology and business models of the projects are very stereotyped. Companies that are private equity investors are not an office like a VC, with a scale of about ten people, but an investment bank level. The vast majority of start-up companies will not reach this stage, or do not need to go to this stage.
In addition, there is also a place where it is easy to confuse the concept. Private equity in a narrow sense is the investment in the mature stage that I just mentioned, but in a broad sense, the angel investment, venture capital and private equity investment in a narrow sense are all included in the scope of private equity investment in a broad sense. Because the counterpart to private placement is public offering. What is a public offering? That is, the funds raised after the IPO public offering, and all the financing before the IPO are private placements. But any industry has its own terminology. Just like the difference between seed rounds and angel rounds, there are differences in investment circles in China and the United States. Therefore, in the field of venture capital, if you hear people say "private equity", then they are referring to the investment in the later mature stage, not the investment before the IPO in a broad sense.
Private placement is followed by IPO. We will not go into details in today's issue. In the last few issues of my US Corporate Law 20 series, we will specifically talk about public offerings.
Today, I introduced the various stages of startup companies accepting investment. In the next lecture, we will talk about the legal documents commonly used in angel investment, including convertible note convertible bonds that you must have heard of.
See you in the next issue.
