Startup Fundraising Logic: Angel, VC, Series A/B, and the Complete Path to IPO
Venture capital’s business model rests on a statistical logic: in a 10-portfolio fund, approximately 6–7 fail (total loss), 2–3 achieve ordinary returns, 1–2 achieve 100x+ returns (“home run” returns) — one successful unicorn can cover all other fund losses and generate overall high returns. This power-law distribution characteristic means VCs prefer projects with extremely high upside potential (large enough Total Addressable Market) rather than stable-profit but limited-upside traditional businesses.
Funding Rounds and Valuation
Angel/Pre-Seed: typically ¥1–5M (or $200K–$1M), from individual angels or incubators (YC, 500 Startups), at early product or idea stage. Valuation based more on team capability and market judgment than financial data.
Series A: first institutional funding round, typically after initial product-market fit (PMF) validation, usually ¥10M–¥100M. Valuation primarily by market comparison (P/S multiples, comparable company valuation) rather than DCF — early company cash flow projections have limited reliability.
Series B/C: growth-stage financing for sales/marketing scale and team expansion, typically ¥500M+. Primary investors shift to Growth VC and Private Equity.
Key Term Sheet Terms: Liquidation Preference (ensures preferred shares recover investment before common shares; 1x non-participating is the most founder-friendly standard); Anti-dilution Protection (prevents subsequent lower-valuation financing from harming investor interests); Board Seat (gives investors governance participation rights). Y Combinator’s SAFE is the most widely used seed-stage financing standard document.
