What Are the Startup Funding Rounds?

It takes money to make money – so what are entrepreneurs and startups to do when they have no money? Simple: They seek startup funding.

Except, it’s not that simple at all. Building a new business takes a lot of money. We’re talking tens or hundreds of thousands of dollars just to get a running start, and maybe a few million more to get off the ground.

It’s hard work, for sure, but the success of Silicon Valley tech giants that began as startups run out of college dorm rooms and off-campus apartments demonstrate that almost anyone can succeed. Key to that success, however, is getting the rounds of funding required to turn a startup into a profitable business venture.

The following are funding rounds that every entrepreneur should become familiar with:

  • Pre-Seed
  • Seed
  • Series A
  • Series B
  • Series C

Read on to learn more about these types of funding for startups to get a sense of what you, as an entrepreneur, should plan for in the future. If you need legal representation to help you negotiate and secure the capital you need, consider getting in touch with our attorney at MSD Law for help.

Pre-Seed Funding

Pre-Seed Funding happens almost as soon as startup founders decide to put their noses to the grindstone. This type of fundraising isn’t generally considered as an official round of funding, but it’s important on giving companies vital momentum at their start can’t be ignored.

In the vast majority of scenarios, pre-seed investors are the founders themselves using their savings or disposable income. Other pre-seed investors may be family members, close friends, or anyone else who may personally believe in the founders and their vision. That last bit is important because pre-seed funding is typically not exchanged for equity in the company.

Seed Funding

Seed funding occurs when a startup begins selling equity to raise capital. This is an important round of funding because it “seeds” the business, giving the founding team what it needs to perform market research and develop its product. Ideally, the company grows to a point where it starts gaining revenue streams or attracts the attention of Series A investors (even though some companies never need to go beyond seed funding).

Seed investors can be anyone who is interested in purchasing equity in the startup. These investors can be family members and friends, but often – and more importantly – they are venture capitalist firms and angel investors.

Series A Funding

Once a company has established itself by developing a track record (a growing user base, consistent revenue stream, or another key performance indicator), it can look to Series A funding to optimize its offerings to consumers. Sometimes this can mean scaling products across various markets or diversifying its offerings to engage customers on various levels.

Series A rounds typically raise anywhere between $2 million to $15 million, and investors aren’t just looking for good ideas. Instead, these investors are seeking companies that have serious strategies for molding their great ideas into profitable businesses. Series A investors can also take a more “political” role in

Series B Funding

When businesses need to push past the development stage, they turn to Series B. This round of funding helps new businesses that already have a substantial user or customer base expand their reach in the market. Often, this is accomplished by hiring new talent in tech, sales, advertising, and support to meet the demands of growth.

Typically, a company seeking Series B Funding already has a high valuation ($30 million to $60 million) and is looking to raise around $30 million in capital. Series B Funding is sometimes secured by the same investors as in Series A, although there will typically be a key anchor investor who helps to draw in other investors. In this case, the new wave of investors is bound to include highly experienced late-stage investors.

Series C Funding

If a business is seeking Series C Funding, it is already successful. So why does it need new capital? For most, Series C Funding is used to expand into new markets, develop new products, or acquire new businesses. Investors who contribute to Series C Funding are can contribute hundreds of millions of dollars, hoping to at least double their investments over time.

Do You Need Help with Startup Funding?

At MSD Law, we offer legal advice and services to startup founders who are trying to turn their idea into the next most successful business. If you need assistance, we’re here to help.

Get in touch with MSD Law today by contacting us online or calling (210) 880-0652.