Crypto Basics 
Crypto startups typically lack the financial resources to fund their ideas, so they conduct several rounds of funds to raise capital. Each funding round has a different type of investors, funding targets, min and max contributions, and token prices. In traditional finance, funding rounds could be referred to as series, using the alphabet, such as series A, B, C, and D. Series classifications are not often used in the crypto industry.
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The purpose of investment rounds
An investment round is a stage of financing a project by different types of investors. The funding stage is determined based on the progress of the project development, seeking funds for the development of a new product or an existing one. The generally accepted classification of investment rounds in crypto and other markets begins with a seed. It is the seed of funds planted or needed to kick off the project development. So during pre-seed and seed rounds, a product may not yet exist, only a concept on paper.
Pre-seed round
At this funding round, the source of funds comes from the founders’ savings and the so-called FFF triad – Friends, Fools, Family. Fools refer to unsophisticated investors who invest without much consideration and with a high risk involved. Since the risk is high, preseed investors obtain their tokens for a low price, the lowest price anyone can get.
Seed round
This stage is the most difficult since it requires raising funds from sophisticated investors, who require documentation about the project, such as a whitepaper detailing the problem it solves. The circle of investors in this round could include business angels, startup studios, accelerators, incubators, and venture capitalists. A seed round may only target one or two types of investors followed by a private or strategic round which may target other types of investors. Seed investors receive preferential token prices for carrying the risk of investing early and for offering advice, support, and connections in the industry.
Conclusion
Investing in projects at an early stage carries significant risks. One of the most common is project failure. However, if deemed successful, early investors reap high rewards. Preseed and seed rounds may be followed by private, strategic, and presale before the final funding round, the public sale. You can read more about the types of public sales in our article on ICO, IEO, and IDO.
