Funding rounds have names, but no law defines them. A “seed round” in Lahore can look different from one in San Francisco. What stays the same is the logic: each round should buy the evidence you need to raise the next one, or to stop needing outside money. This guide explains each stage, what investors tend to look for, the instruments they use, and what happens in Pakistan after the money arrives.
This is general information, not legal or tax advice.
The basic logic of rounds
Each round should fund a specific set of milestones. When you hit them, your company is less risky, so a new investor can justify a higher price per share. If you miss them, the next round is harder and may come at a lower valuation.
Think of each round as answering one question:
- Pre-seed: Is there a real problem, and a team that can solve it?
- Seed: Will customers pay, and keep paying?
- Series A: Can the business grow predictably if more money goes in?
Stage by stage
Founders, friends and family
Many companies start with the founders’ savings and money from people they know. The amounts are often small and the deal is based on trust. Treat it as seriously as any other round. Agree in writing whether the money is a loan, a gift or an investment in exchange for shares.
Pre-seed
- What you have: a team, a clearly defined problem, and often a prototype or early users.
- What the money buys: the first version of the product, early sales and fast learning.
- Who invests: angel investors, small funds and some incubator or accelerator programmes.
- What investors look at: the founders, the size of the problem and how quickly the team learns.
Seed
- What you have: a product in the market and early signs of demand, such as paying customers, repeat usage or a growing sales pipeline.
- What the money buys: a repeatable way to win and keep customers, and a small team to run it.
- Who invests: angels, seed funds and early-stage venture funds.
- What investors look at: retention, early revenue, unit economics and whether you understand your sales channel.
Series A
- What you have: a product customers clearly want, and a growth engine that works in at least one market or segment.
- What the money buys: scaling that engine through more sales staff, new cities, new product lines or new markets.
- Who invests: venture capital funds, usually with one lead investor setting the terms.
- What investors look at: growth rate, revenue quality, gross margins, how fast you recover customer acquisition costs, and whether the team can run a larger company.
There are no fixed amounts or valuations for each stage. They depend on your sector, market conditions and traction. Be cautious with anyone who quotes you a “standard” number.
Instruments you will meet
- Priced equity round. Investors buy newly issued shares at an agreed price per share. The valuation is set now.
- Convertible instruments. Investors pay now and receive shares later, usually at the next priced round, sometimes at a discount or subject to a valuation cap. The SAFE (simple agreement for future equity) is a common example from the United States. Whether such an instrument works for a Pakistani company, and when shares must be issued, depends on Pakistani company law and on where the investor is based. Have a local lawyer review any template written for another country.
- Debt. Loans, from banks or specialist lenders, which you repay with interest. Debt usually does not dilute you, but it must be repaid whether or not the business succeeds.
Term sheets: the words that matter
A term sheet summarises the deal before the full legal documents are drafted. Much of it is standard. A few terms matter a great deal:
- Valuation, pre-money and post-money. Sets how much of the company the investor receives for the money.
- Option pool. Shares reserved for future employees. If the pool is created before the investment, it dilutes the existing shareholders, not the new investor.
- Liquidation preference. Who is paid first, and how much, if the company is sold or wound up.
- Board seats and consent rights. Which decisions need investor approval.
- Pro-rata rights. The investor’s right to invest in later rounds to keep its percentage.
- Founder vesting. Your shares may vest over time, so a founder who leaves early does not keep everything.
Two term sheets with the same valuation can be very different deals. Read them line by line with your lawyer.
What happens in Pakistan after you close
If your company issues new shares, SECP filings follow. According to SECP’s FAQ on the Companies Regulations, 2024:
- File Form-3 within 45 days of allotting shares.
- Report shareholding changes above 25% to the registrar within 15 days on Form-3, with an affidavit.
- Members holding 25% or more must declare the ultimate beneficial owner on SECP’s forms within 14 days, and the company must keep its beneficial ownership register up to date.
SECP also says that since 3 March 2025, newly incorporated companies must issue shares in dematerialised form.
If your investors are outside Pakistan, the money comes in through your bank and foreign exchange rules apply. Involve your bank early so the inflow is documented correctly. Some startups that raise from foreign investors set up a holding company abroad. That changes your legal and tax position significantly, so take advice before you do it.
How to prepare before you raise
- Define the milestones the round will fund and how many months the money will last.
- Clean up company records: share register, SECP filings, founder agreements and assignment of intellectual property to the company.
- Build a simple data room: pitch deck, financial model, cap table, key contracts and tax registrations.
- Know your numbers: revenue, growth, retention, customer acquisition cost and monthly burn.
- Speak to founders who have raised from the investors you plan to approach.
Checklist
- Decide whether you need to raise now, or can grow from revenue.
- Size the round from your milestones, not from what other startups raised.
- Choose an instrument with your lawyer.
- Negotiate the whole term sheet, not just the valuation.
- Complete SECP filings within the deadlines after closing.
- Update your cap table on the day the round closes.
Sources and further reading
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