Confused between series A, B, C, and seed rounds? Here are all the funding rounds you’ll go through, in order.
In the hyper-competitive world of startups, it can be tough to get the funding you need to get your business off the ground—or to keep it afloat. While many startup owners may initially think this is only an issue during the early stages, securing funding can actually be a recurring challenge for years after your business launches. In this article, you’ll learn the different funding stages your business will go through, and what you need to do to secure funding at each stage.
Idea Funding: Pre-seed Stage
The first stage of funding is typically referred to as the “pre-seed” stage. This is when you’re still in the process of developing your idea, and you need funding to help bring it to life.
At this stage, it’s actually relatively uncommon to secure outside funding. Most funding may come from the founders themselves, family members, friends, or other supporters of the project. A crowd-funding project or other types of grassroot campaigns may help if you don’t have suitable out-of-pocket funds. Startup accelerator programs can also provide funding at this stage.
If you do want to secure external funding from investors at the pre-seed round, you’re going to need to demonstrate a lot of promise—and have a bit of luck. A well-developed business plan, a promising minimum viable product (MVP), a strong founding team, and a really good pitch are all essential at this stage.
Prototype and Product/Market Fit: Seed Stage
After the pre-seed stage comes the seed funding stage. This is when you’ve fleshed out your idea a bit more and are ready to seriously start developing a prototype, conduct further market research, and form a team of employees.
Like the pre-seed stage, seed funding is a little bit tricky because you’re still asking people to take a chance on you. This is why your best bet is convincing angel investors or a venture capital firm that you really have something special. Having a good prototype and demonstrating product-market fit are essential at this stage.
Initial Growth and Rapid Scaling: Series A & B
If your business has made it through the first two stages, congratulations! This is when things start to get a little bit easier, as your business has started to gain some traction.
At this stage, you’re going to need what’s called “growth capital.” This is funding that will help you expand your business by opening new locations, hiring more staff, and increasing production. Series A and B growth capital typically comes from venture capitalists, as they’re more likely to take risks on businesses that have already proven themselves.
A New Option: Non-Dilutive Funding Based on Revenue
While venture capital is an extremely popular option for series A and B funding, giving away equity of your company can make some founders feel uncertain. If you’re not interested in relinquishing ownership of your company, you may want to consider other options, such as non-dilutive capital.
Non-dilutive or revenue-based funding is a type of funding that doesn’t require giving up ownership of your company. Instead, an investor will give you a loan based on your projected growth, which gets repaid in the form of a portion of your monthly revenue.
This type of funding can accomplish the same goals as venture capital, without nearly as much of a sacrifice. For example, revenue-based finance lender Novel Capital used its funding power and mentorship to help SaaS company Wisboo grow 5X every year for three years without Wisboo having to sacrifice any equity.
Expanding to New Markets: Series C & D
These are usually the last funding rounds companies have before they go public. If Series A and B are used to accelerate growth, series C and D are utilized to make that growth as stable, sustainable, and profitable as possible.
At this point in your business’s lifespan, you should be looking to expand into new markets, create new product lines, or even acquire other companies. Since this type of expansion requires significant amounts of funding, these funding rounds are typically much larger than the earlier rounds.
Even though you’ve already proven that your company can be successful, it can still be quite challenging to get funding at this stage. Hedge funds, private equity firms, and other big investor groups are your typical lenders at this stage.
No matter what funding stage you’re in, it’s always important to stay cautious and avoid partnering with investors who will be bad for your company.
Always know what investors are looking for in each stage, and only partner with investors like Novel Capital that care about your company’s goals and mission—not just the monetary transaction.
Never lose focus from building your company, and always follow your dream, not the dream of the investor. Remember, it’s your company, and you should know your vision best. Good investing partners will recognize this and give you the support you need to grow.