Key market features
Investment rounds
As a business progresses through the different stages of its development, it raises investment through a succession of funding rounds.
Typically each funding round is given a letter, such as A, B, C, etc. to signal that each round follows another. The letter identifies which number of rounds a company is on – e.g. “B Round” would entail the second round of funding a company has had. The type of funding round also depends on the type of shares that are being offered, such as ordinary or preferred shares.
Seed and angel rounds
The seed round usually occurs when a company is at the initial idea stage, or once the founder has a prototype or proof-of-concept, as well as some kind of sign that a demand exists for the good or service that could be marketed. An angel round often occurs when a company is just launching, if not before.
Seed and angel investment rounds normally entail a consistent share of equity funding originating from friends and relatives. Nevertheless, it can also include money from angel and seed investors who are focused on early-stage companies. Funding for new ventures and start-ups is often made available through national and/or EU grant and/or financial instrument programmes.
Typically, investors provide smaller amounts in exchange for equity, because the company will have little or no track record and the risk is higher than for a more established company.
Series A Round
As with the previous round, investing at this stage is usually regarded as high risk since the company is still at the start-up stage with no track record and a lot to prove. Following the issuance of share options by the company (usually to founders and employees), it will often offer a Series A round of shares in return for funding.
Business Angels may be interested, but venture capitalists can also invest at this stage. Business Angels normally invest their own capital and are often high-net-worth individuals.
VCs and other institutional investors tend to invest other peoples’ money, thus they usually only invest in companies with a proven track record to reduce their risk.
Series B Round
Series B rounds are the second round of funding by equity investors. By this stage, companies will likely have a higher valuation than in previous phases as well as a track record, thus decreasing the investment risk. This implies, in turn, that the cost to invest will be higher.
At this stage, investors will seek to identify signs of growth in revenue, consumers/users and product/service success.
Series C Round
Typically, a Series C round is required when a company is ready to go for rapid growth. At this stage, a company usually:
- Has become a proven success in its market;
- May wish to make acquisitions of competitors;
- Increases its market share; and
- Scales-up or develops new products or services.
Zotcar: the leading private car rental in La Réunion
Zotcar has developed an innovative digital and collaborative car rental solution tailored to the Reunionese market. Instead of parking their car at the airport, travellers can offer their vehicle for rental whilst they are away. The company manages the rentals and the car owner receives 50% of each rental.
The start-up secured a EUR 540 650 equity investment from Essor PME La Réunion, the ERDF equity financial instrument set up to finance any enterprises in the island of La Réunion. The company uses the investment to strengthen its R&D and operational team, acquire additional equipment, as well as replicate its economic model outside La Réunion.