Seed To IPO: Here Are the Different Funding Stages In a Startup Each funding round comes at different stages of a startup's growth, with different conditions and expectations
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
A funding round is when you raise money from investors to grow your business. You could be getting the capital infusion from accelerators, angels, grant financing, microVCs, VC and PE funds in exchange for your equity or as a debt.
These investors also bring in expertise to provide sector-agnostic inputs along with financing. You can raise pre-seed, seed, series A, B, C, D etc.
Here is an explanation of each stage.
Usually, much of the capital during this phase either comes from your friends or family. This is when you are still testing your product in the market and developing a marketing plan for the product or service launch.
This is when a startup launches a product or service after ensuring product market fit. Angel investors, micro VCs, friends and family are some of the sources of capital during this stage. This round helps a startup reach its first set of customers. Usually, startups with a value of three to six million dollars qualify for seed funding. During this stage, the investor usually takes a bet on the entrepreneur rather than the business potential.
The term Pre-series A was coined in 2013. This round is becoming more common today in India. It is a mid-round between Seed and Series A rounds. This becomes crucial when you are waiting for a huge Series A round to come in, but need cash to operate.
Series A funding
This is usually the actual third stage of funding except when some startups raise the bridge round, that is, Pre-series A. During this stage, investors want to be sure that their investment will be fruitful and that they will get healthy returns on investment. This round comes through not for the idea or the dream of the entrepreneurs, but on actual numbers with a solid business strategy.
Series B funding
This round happens when you have achieved a solid user base. Investors pour capital when they are sure you are on the right track to reaching a large global scale when unit economics drive growth.
Series C D E funding
These are the last stages of startup financing before they go public. This round helps businesses in the expansion of products and services and geographical expansion. The amount raised in these rounds is usually drastically higher than in the earlier rounds. For instance, a Series C ranges up to $100 million. Investors in these stages are usually late-stage VCs, private equity firms and hedge funds.
Initial Public Offering (IPO) is the final stage of startup financing. During an IPO, a private company's shares are offered to the public. Though the most challenging stage of any company, the benefits are also far higher. You have to demonstrate potential for future growth and profitability to a vast number of people. However, this funding offers a great amount of capital for you to achieve growth and expansion objectives.