There are several distinct phases in the startup fundraising process, including the initial seed funding rounds as you’re working on getting your business off the ground. From there, if you manage to gain sufficient traction, you’ll have the option to progress through subsequent rounds, namely Series A, Series B, and Series C. In this piece, we’ll examine these different startup funding stages and discuss:

• Why startups need so many funding rounds
• The similarities and differences between funding round types 
• Methods you can use to get your business funded

The Stages of Startup Funding

There are a few different stages of startup funding, including:

Pre-Seed Funding

Pre-Seed is where your funding journey will begin. As a business owner or entrepreneur, during this phase you’ll typically receive a modest  investment from a handful of sources, often close friends or family. These funds should be enough to get your startup up and running, which is likely only an idea at this point. Other potential pre-seed funding sources include startup incubators, government grants, pitch competitions, and selected venture capital firms.

Seed Funding

The Seed funding stage is when you begin to ramp up your idea into an actual business. The funds brought in during the seed phase usually go towards building a product, acquiring early customers, and hiring a small team. Seed rounds are often when angel investors and more prominent backers take the lead. Angel investors will often seek to provide funds to companies during this stage in exchange for equity.

Series A Funding

The Series A phase is for when your company is already up and running. By this point it has established a customer base and likely has a product or service garnering interest in its target market(s). Series A is the step of the funding journey where you’ll often see larger venture capital firms enter the fray to provide funds. Funds raised during a Series A round will often go towards supporting a business’ long-term plan for future growth.

Series B Funding

A company raises their Series B when it has grown beyond the bounds of its previous funding rounds and needs more money to expand. This may include hiring more staff or building out its product offerings to accommodate its growing customer base. Like Series A, Series B funding is usually led by venture capital firms and similar organizations.

Series C Funding

While some companies go on to Series D or E funding stages, Series C is often the final raise before a business goes public. By this point, companies’ customer bases are established, their reputations are strong, and they’re less likely to fail. As a result, Series C rounds are typically larger than previous fundraises because investors see companies at this phase as less risky and more likely to generate strong returns. 

Similarities Between Seed and Series A, B, and C Funding Rounds

There are some similarities between the stages of startup fundraising. While the amount a business receives will differ by funding round, all stages are designed to provide enterprises with the capital they need to expand their operations.

Differences Between Seed and Series A, B, and C Funding Rounds

While similarities exist between funding rounds, you should also be aware of the differences, the main one being how much money a startup receives during various stages. Pre-seed will usually be the smallest round a company raises. Typically, this number is anywhere between $50,000 and $200,000, though pre-seed investments can be north $1 million in rare cases. Funding rounds that occur further down the line once the business is fully operational are often considerably greater.

The sources of funds also tend to vary depending on the round. As mentioned, angel investors are more often visible during earlier funding phases but may disappear later to be “replaced” by venture capital firms. Venture capitalists usually enter the picture when enterprises seeking funds are more established because they’re viewed as less risky.

Sources also offer funds in different ways. Angel investors will typically use their own money when backing startups. In contrast, venture capitalists will seek to invest money belonging to other individuals or institutions—such as family offices or hedge funds—into businesses they deem worthy.

Lastly, certain funding rounds pertain specifically to the size and scope of the business seeking funds. Pre-seed funding, for instance, is for a company that’s only in an idea phase. This is very different from Series C funding, which usually takes place when a company is no longer a startup and is well established in its industry.

Why Do Startups Need So Many Funding Rounds?

Do startups actually need so many funding stages to garner the funds they need? It depends on several factors, including how big the company is getting. If an enterprise is experiencing exponential growth, it will likely require a steady stream of funds to hire the staff necessary to keep up with customer or production demands. While rare, some companies will go beyond Series C and move into Series D and E funding to keep themselves stable.

Another big factor to consider is how well a company is doing. According to CB Insights, only 46% of companies end up raising funds beyond the seed phase. This is mainly because a great deal of companies do not survive beyond seed funding. The world of startups is a risky one; how much money your startup earns will depend largely on how well it resonates with customers. If they need what your company offers, your business may keep flowing. If not, you’ll likely find yourself closing shop before stepping into the next funding round.

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