Alphabet Rounds

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DEFINITION of 'Alphabet Rounds'

The early rounds of funding for a startup company, which get their name because the first is known as Series A financing, followed by Series B financing, and so on. Alphabet rounds of financing are provided by early investors and venture capital (VC) firms, which are willing to invest in companies with limited operational histories on the hope of larger future gains. These investors will typically wait until the startup has shown some basic signs of maturity and has exhausted its initial seed capital.

BREAKING DOWN 'Alphabet Rounds'

When a company is seeking venture capital funding, it will still have little or no revenue/cash flow, but will generally have an established business model and a clear path to a designated market segment. Venture capital firms are looking to invest with a time horizon in the five- to seven-year range, at which point they can hopefully cash out to a private equity firm or through an initial public offering of stock.

Depending on the needs of the company, a Series A round of financing may be enough to propel the company to the point at which it can stand on its own operating cash flow. If a VC firm is participating in a later round of financing - a Series C financing, for example - its potential equity stake in the company will already be diluted, and it will need strong conviction that the company will earn a solid return before committing any funds to the startup.

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