Financing Round Nomenclature Revisited

When I started investing in startups a long time ago, the labeling of financing rounds was as simple as the Sesame Street alphabet song – A is for Abbey, B is for Bert, C is for Cookie Monster; ok, you get it. The rounds were named for the purpose of identifying shareholder rights in a particular class of stock. The names weren’t used as a tool to avoid pigeonholing a startup into a particular stage of growth the way they are today.

The labeling of financing rounds has become silly: Seed. Pre-Seed. Early Seed. Gap. I’ve even seen a round classified as “Genesis” recently. To compound things, if you ask a dozen entrepreneurs or investors what each of these rounds mean, I guarantee you’ll get a dozen different answers.

I’ve come up with an idea to simplify this practice and ran it by a few friends. They all liked the logic and simplicity, so I’m throwing it out there. I propose that we start labeling rounds by the size & post-money valuation of the financing. Here’s a hypothetical financing history of a company using this method:

  • $500K/20% Discount Note round.
  • $750K/6.5M round.
  • $3.2M/17.8 round.
  • So on and so forth.

Using this process, when I look at the cap table as an investor, it tells me in an instant just about everything I need to know about a company’s financing history and eliminates all the nonsense about trying to properly name a financing round.

Whaddya think?

Showing 2 comments
  • Kelsey Breseman

    Bit of a mouthful, but I like the clarity. Trying it out in a sentence: “Company X just raised $750k for a valuation of $6.5M”? At that rate, I’m not sure it’s different from current practice, just cuts to the chase by eliminating the “X raises $750k in Seed Funding” headline.

    • Mark Solon

      Wasn’t trying to solve for headlines and you make a good point Kelsey. I guess you could say “X raises $750 in their 1st round of financing.”

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