There are three primary startup funding stages: seed, series A, and series B. A company at the Series A stage is looking to generate a profit long-term. Angel and venture capitalists are likely to invest money in a company with these characteristics. Angel investors are usually less influential than venture capitalists and are more likely to provide seed funding. Series B companies are looking to scale their operations to meet increasing demand. And, while a Series C company needs more money to grow, it’s still a good idea to have a business model in place before approaching investors.
Seed funding is the first stage in the startup funding process. The goal is to secure initial seed capital from friends, family, or a bank account. This initial funding is usually provided by the founders themselves or friends. This stage is often referred to as pre-seed funding because it is used to fine-tune the idea before reaching the seed stage. But, it’s important to note that seed funding is a risky phase and requires outside investors to provide additional money.
In this round, entrepreneurs seek guidance from other successful founders to determine the cost of their idea. They develop a winning business model and collect ideas for how to grow their plan into a profitable operating business. During this stage, entrepreneurs also work out any legal snags they may have. Otherwise, they could end up with costly legal issues later on. And, investors will likely avoid funding startups with legal issues. This is because legal issues can make a startup unsuitable for investment.
The third stage involves venture capital. This type of startup funding is more expensive than the previous two but is intended to take a business to the next level. This funding is meant to make it big and move it closer to an IPO. The amount of money invested in this stage is also significantly larger than that of Series A funding. VCs typically invest hundreds or even millions of dollars into a company. A Series B investment can be valued at $30-60 million.
The most common stage of startup funding is pre-seed. Pre-seed funding provides an initial amount of money to fund a business, but it is still very early in the process. Many startups fail within their first year, and lack of funding is one of the main reasons. It is often difficult to convince an investor to invest in an idea, but rejection is a useful tool. In the end, you’ll walk away with money that you need for expansion.
The Series A funding stage is also crucial. During this stage, startups have to hire and retain great employees for different roles. No longer can founders wear all the hats. So, raising money for competitive salaries is critical. Typically, a company will raise between $7 million and $10 million in a Series B round, and this funding round is usually the first of many. After this round, the company has received multiple offers from investors, and the valuation has reached $60 million.