Startup Funding Stages
What Is The Difference Between Funding Rounds?
Many founders of startup companies who’d like to grow the company, consider raising money in a funding round. To grow even more, many startups raise money in several funding rounds.
Every funding round may have a runway of about one year. And every round aims to generate sufficient funds for the company to expand further. In this article, we will explain the different startup funding stages according to their objectives.
The First Stage: Pre-seed
When entrepreneurs attempt to create the first iteration of their product, they first spend their personal income or money from friends and family. This is known as pre-seed financing. Pre-seed funding can also be raised from angel investors, accelerators or incubators, or dedicated VC funds such as Peak.
The amount of pre-seed rounds varies significantly from business to business. Actually, there isn’t a precise number. On average, pre-seed round funding may vary between $50,000 and $250,000.
Funding is typically provided for a period of 3-9 months. The founders should have access to sufficient funds to successfully achieve the objectives and financial projections outlined in the fundraising and pitching phase.
Seed Stage Funding
In this stage, the startup needs money for marketing, sales, and recruiting people.
On average, startup founders raise an amount between $500K to $2M in the seed stage. Typically, seed-stage funding is raised from the same investors as in the pre-seed funding stage.
Read also: early-stage venture capital.
Startups trying to raise a Series A round are usually the ones that have a business model that works and a reasonable amount of clients. At this point, the funding amount is on average between $2 million and $15 million. Venture capital companies are the usual financiers at this stage, and they require startups to provide data and proof of growth for further funding.
A Series B funding amount is on average between $10 and $20 million. Although investments of any size are possible during this point.
The companies raising money in the Series B stage are well established around this time. Funding is usually provided by venture capital firms with a focus on late-stage funding.
The companies that raise a Series C are oftentimes valued at $100 million or even more. Round C, usually the final fundraising round, is used to develop other products and expand into other markets or territories. Series C funding is usually provided by venture capital firms specializing in late-stage startups, private equity firms, hedge funds, and investment banks.
This new funding will prepare the company for the exit stage with an initial public offering or IPO. This event will make a private business’s shares available to the general public and represents the final phase of a startup’s life.
Other Funding Stages
The Series D Funding
If somehow the firm couldn’t obtain sufficient funds during its Series C investment round, a Series D financing round could be necessary. This frequently creates effects on the company. Whenever a company receives Series D capital, it often means that the value of the company has dropped since it failed to achieve its goals.
The Series E Funding
When a Series D investment cannot satisfy the firm’s capital requirements, it could require Series E funding. Ultimately, this is not a good sign for the company and a Series E funding round could be the only way to keep the company afloat.
Related article: what is a bridge round?
Starting a business is always challenging. Raising capital through various funding stages is needed when you are transforming your business from startup to scaleup and enterprise. Startup founders benefit from the support of (pre-)seed investors and Series A, B, and C investors during this journey that perhaps leads to an IPO event.