A Guide to Seed Stages

What does Series B funding round mean? It’s a good question and people don’t like to ask too much and give away their lack of knowledge. But these are fairly technical terms that unless you are fundraising yourself, you’re unlikely to know.

Pre-seed

Exactly how it sounds. This is usually the initial sum invested by the founders to get a startup moving or to get past the first couple of milestones before a proper investment. The values are typically low – ranging from the tens of thousands to the hundreds (normally less than a million). This tends to be a friends and family type of investment.

Series A Funding

This is the first official round of funding for a startup. Often times it is the last – either because the business generates enough cash or because it doesn’t progress far enough to require an extra injection of finance.
Series A funding is ‘hitting the big time’. It means that a startup has a proven product or service and is market ready.

The money is normally in the range of $10-$15 million and will be targeted towards scaling up and expanding growth channels. VCs are often the source of the funds, along with big time angel investors.

Series B Funding

By the time a startup gets to Series B funding, it is already a successful business with a strong user base. The business case is already clear and an additional round of funding help the startup access new markets.
It will allow the business to make strategic hires and to try and enter new segments.

Series B is usually more than $20 million and often up to three times that.

Series C+ Funding

Series C is usually geared towards expanding internationally or to fund acquisitions. This is a funding round that is rarely reached. Most startups will struggle to get this far, but those that do have really ceased to be startups and are burgeoning corporations. This is where institutional investors get involved and really bring the jawdropping sums.

For these kind of investors, they will look for much larger investment opportunities because the returns they generate are so much bigger. A 5% return on a $200 million investment is a much more exciting prospect than a 5% return on $500,000. For the most part, institutional investors won’t go anywhere near investments under $3 million.

Because startups vary so much in size and revenue by the time they get to this size, the scale of the funding they raise at this stage varies greatly, but a $50m funding round would not be unusual.

Conclusion

There are more and more funding rounds that follow – they are technically limitless but after reaching a certain point, a lot of founders are looking for their exit or big payoff and so are the investors who helped them to get there. They go public and raise money from the markets, go through M&A processes and use the formal lending structures of institutions.

If you get to this point, you can safely say you have succeeded!

 


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