In the startup world, there are many different types of funding. In addition, each stage has other requirements and benefits, from pre-seed funding to series C funding. This guide will cover all the stages you’ll need to know about when fundraising for your business.
When an investor is investing in your company, they want to know two things: how much money they will make if they invest in you and what kind of risk they’re taking. The second part is just a way of saying that the investor wants assurances that their investment isn’t worth anything if something goes wrong (in which case they might lose their entire investment). So the first part—the financial upside—is a “valuation.”
Pre-seed funding is the first stage of venture capital. You will be raising at most $500,000 and less than $1 million during this stage. A typical pre-seed round can range from $100k to $750k, with a valuation between those numbers.
For comparison, seed funding rounds tend to have lower valuations and cost more per investor dollar invested (a cost called “price per share”). For example, a seed investment might be priced at 20 cents per share. In comparison, a pre-seed investment might be 30 cents per share — though many factors go into pricing an equity stake in a company, like the size of the round and the type of investor involved.
Seed funding represents the first type of startup financing that many businesses receive. Its purpose is to provide startups with the necessary resources to get their operations up and running quickly. Companies receive seed funding before launching their first product to ensure a smooth start.
Seed investors are eager to invest in new companies because they know that many startups will fail (about 90 percent). However, if you can make it, there’s a chance that your company will grow into something much more significant than what was initially predicted.
Series A is the first round of venture capital financing. It’s also the first time a company raises money from professional investors. Although Series A funding rounds typically range from $1 million to $10 million, it’s important to remember that not all companies raising their first round of VC funding will be looking for this amount.
Some companies may receive only $500,000 or less—or even decide not to raise any funds (a tactic often referred to as “bootstrapping”). And others might raise more than $10 million during their series A funding round—this could be due to an influx of interest in their industry or just because they want ample growth capital!
Series B funding is a funding round that comes after Series A. It’s the second of three stages of venture capital investment in a startup, with Series C being the last stage. In terms of price and cost, there isn’t much difference between Series A and Series B investing—both preferably occur at $2 million or more.
However, if you’re trying to raise capital for your startup, it’s best not to think about how much money you’re raising at once; instead, focus on working with investors who have relevant experience in your industry and are willing to commit to long-term support.
Series C is the third round of venture capital financing after Series A and B. The average amount raised by companies during their last round of financing was $51 million, according to Crunchbase data as of February 2019; however, this number varies widely depending on industry type and market size (the larger a company gets, it usually means more customers or employees).
The median amount raised during this stage was $30 million, while the average raised in 2019 was only $9 million—a far cry from its peak in 2014 when average investments were over $241 million! In addition, most venture capital firms don’t invest outside their home cities, so it’s hard for smaller companies outside these areas to get funded.
What Happens After Series C Funding?
Series C funding is the last round before a company goes public. As a result, series A, B, and C investors may be called “pre-IPO” or “pre-IPO” shareholders.
At this point in the funding lifecycle, you may not need to make any changes at all—or you could have already made all the necessary changes during earlier funding rounds. But it never hurts to know what needs to change so your business can thrive once it begins trading publicly on its terms.
Founders and CEOs need to consider how they want their company to operate after going public: Do they want independence? How will people access my product or service? What if I want more control over who uses my product or service?
This article provides a concise overview of the concepts behind Series A, B, and C funding. It has served as a valuable resource in enhancing your understanding of the subject. In addition, it has equipped you with the knowledge necessary to embark on the exciting journey of creating your next big venture!