For most startups, funding is essential to their growth. It can be a difficult process to understand, especially with the different terms and phases involved. There’s a lot of different stages that come into play when it comes to raising capital.
Let’s dive deep into startup funding phases and explain the differences between the three most common ones: Series A, Series B, and Series C Funding Rounds.
By understanding these different rounds of funding better, entrepreneurs can make smarter decisions about how they should approach fundraising for their startup.
What is startup funding and startup financing?
When starting a business, one of the first things you need to think about is how you will finance your venture. There are many different ways to finance a startup, but most businesses will require some form of startup funding.
Startup funding is typically provided by investors who believe in the potential of the company and want to help it grow. The amount of money raised through startup funding can vary widely, but it is typically used to cover the costs of launching and growing the business.
Series A, Series B Startup Financing Explained
Series A and Series B startup financing are terms often used in the venture capital world. But what do they actually mean?
In general, a startup will raise money in two rounds of financing: the first round is called a Seed round, where founders seek funding to start the business from scratch.
The Seed round is followed by Series A and Series B.
There are also rounds termed “Series C” and beyond, but they’re for established businesses and enterprises. To make the concept clear, we’ll focus on A and B here.
Series A
A typical Series A round is between $2 million and $10 million. The money usually comes from venture capitalists (VCs) or other professional investors. In exchange for their investment, the VCs will get equity in the company – meaning they own a piece of it.
Series A financing is typically used to help a company get off the ground and cover the costs of early-stage growth.
Series B
A typical Series B round is also between $2 million and $10 million. But unlike the Series A round, which is typically led by a single VC firm, the Series B round is usually co-led by two or more VC firms.
This is because by the time a company raises a Series B, it has usually grown significantly and now needs more capital to continue its growth trajectory. In exchange for their investment, each VC firm will get equity in the company.
Series C
Series C is the fourth stage of startup financing where the business has established its roots and shows promising potential for expansion.
Now that it’s become a reliable business, it attracts more than just VCs or angel investors. Hedge funds and investment banks can also show an interest in investing at this stage.
How do investors and venture capitalists evaluate startups?
There are 3 KPIs that investors and venture capitalists take into account when evaluating startups, namely:
- Cashflow
- Profitability
- Growth
This basically involves preparing and presenting data that guarantees a substantial business model with long-term profitability. However, other than these KPIs, there are other factors that influence investor decisions.
These include the team behind the startup, the market opportunity, the business model, and the competitive landscape.
Other than the business model and the idea behind it, one of the most important factors is the team behind the startup.
Investors want to see a team that is passionate about their idea and has the skills and experience to execute it. They also want to see a team that is committed to the long-term success of the company.
The market opportunity is also an important factor. Investors want to see a large market with robust growth prospects. They also want to see that the startup has a clear path to profitability.
Once the business idea and market opportunity seem convincing enough, the business model that the startup is operating with is brought into question.
Investors want to see a business model that is sound and scalable. They also want to see evidence that the startup can generate revenues and achieve profitability.
Finally, investors also evaluate startups based on the competitive landscape. They want to see a market with few established players and high barriers to entry.
Need Help with Startup Funding?
As startup consultants, we’ve spent time understanding startup financing and funding processes from various perspectives.
As investors and startup consultants seeking investment, we have developed networks and expertise that can help early-stage businesses make the right decisions and show their best potential in the market.
Given the tough market competition, we’re here to share our knowledge and empower your team to scale your business. Let’s get in touch and discuss your needs!
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