All You Need to Know About The Different Startup Funding Rounds

MAHLATSE TOLAMO | JANUARY 25, 2021

It is important for startups to familiarise themselves with the types of funding available to them in the different stages of their startup lifecycle. Each funding round is designed to give entrepreneurs and their businesses enough capital to get to their next milestone. Entrepreneurs rely on external funding to kick off their ventures and to convert their innovative ideas into reality. Most businesses generally fail because of their inability to raise sufficient funds therefore, having a stronger foundation is vital for the company to go further.

 

It is important to note that investors are not investing in your past or present but in your future, therefore having a pitch deck that shows were your business comes from and where you are heading to is critical. The valuation of a company may increase when the startup demonstrates:

+ Increased probability of success

+ Proof of concept

+ Growth in customer base

+ Brand Value

+ Understanding the business model

 

Seed Funding

Seed funding is the stage that startups begin raising capital that they need to fund their business ideas. The funds received during this stage are usually for things like market research, product development and employing a team to complete this task. The most common investors during this stage are angel investors because they tend to appreciate riskier ventures and expect an equity stake in the company in exchange of their investment. Typically, seed funding raises between $500 000 – $2million.

 

Series A Funding

Startups in this stage have the basics of an established startup which includes a founding team, a proof of concept and a good track record of capital management from the previous round of funding. Startups in this stage receive funding from venture capitalist after they have demonstrated the potential to grow and generate revenue and they can receive funding of approximately $2million – $15million. Investors look for companies with great ideas and have a strategy to turn the idea into a successful, money making business.

 

Series B Funding

Startups tend to have a good reputation with investments and money management. Valuation in Series B is much higher meaning investors get less equity for their capital because the company is worth more. Startups here utilize the funds to scale up operations, moving a small business into a larger business bracket, customer outreach and increasing productivity. Series B startups are looking for VC Level funding and the average capital raised in this stage is $33 million.

 

Series C Funding

Startups looking for Series C funding are successful and are looking for additional funding to expand into new markets or acquire other companies. These companies work with the biggest venture capitalist firms and corporate level investors. Investors here are more demanding and expect the due diligence process to be intensive. Series C funding also takes place when a company is preparing for an acquisition and when it is in the last stage in a company’s growth cycle before and Initial Public Offer (IPO).

 

Raising funds is very important in your startup journey because it fuels business development therefore it is important that you understand the process of how a round works to get to the size you had envisioned and get a significant exit.

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