Startup funding rounds and their importance – a quick guide.

Raising money for your startup is very crucial for many reasons – to maintain operations, build your team, or just make your brand more visible. Now for this, you have to go through a number of funding rounds to basically establish the fact that your startup idea deserves investor money and that you are capable of meeting various goals and challenges as a part of your startup journey. 

Ideally, each funding round is designed to last for a year. Now, based on the purpose, startup funding rounds are usually divided into the following stages – 

  1. Pre-seed/seed
  2. Series A, B, C
  3. IPO

What are Pre-Seed and Seed Stage Funding?

Pre-seed funding happens when the startup is new and has never raised money officially. It is when founders are trying to give their startup that initial push. 

It is followed by the Seed stage, where founders attract angel investors. These people provide funds for further research, testing market needs, hiring a team, and production start.

At the seed stage, tech startups can aim at anywhere between $500K and $2 million in investments, depending on their needs and presentation. Investors are ready to take risks, and typically invest in a number of startups. Those that go through then receive additional capital.

Some of the well-known companies considered for this stage are Y Combinator, 500 startups, SV Angel, Techstars, Accion Venture Labs, Ankur Capital, and more. 

Series A

Next comes round A. It is focused mainly on startups that have a proven business model, decent customer base, and are already generating profit.

The investments at this stage can start from $3 million and require a specific strategy to reach a higher ROI. Typical investors here are venture capital firms that ask startups to show real data and progress received from previous investments. They want to see the startup turning into a valuable money-making machine ready to scale and get to the next level.

Series B

Round B helps startups turn into enterprises.

At this point, they’ve already matured, have a large user base, and are looking for VC-level participation. Investments at this stage can range anywhere around $10 million and up. This stage is all about scaling up the team and exploring new markets.

Some of the biggest investors here are Accel, Insight Venture Capitals, and Sequoia Capital.

Series C

Moving to round C implies an even higher level of expansion.

The companies are already successful, valued at $100+ million, and are aiming to receive equal funding. As one of the last funding stages, round C includes not only extending current project capabilities but creating new products. So as a startup, prepare to work with the largest VC firms and corporate-level investors that are far more demanding.

Companies at this stage are getting their exit strategies ready to smoothly approach IPO.

In the end, always remember establishing a startup is always a risk. Focusing on the right investors, finding the right words for your sales pitch, and presenting a proof of concept created by the right team will help you go through different funding rounds and become a startup that not only survived but succeeded in a sea of competition.