Series A, B, C Funding: How It Works by Nathan Reiff

TL;DR - seed round helps the company establish, series A and B help the company grow after developing a track record, and series C help companies expand.

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Topic Tags - incentives, funding, equity, rounds, series

Questions answered:

  • What is pre-seed and seed funding?
  • What are series (A, B, C)?
  • When should a founder fundraise?

Summary:

  • If bootstrapping doesn’t work, series are necessary. Holding series rounds refers to growing your business with outside funding.
  • Fundraising can take months and years.
  • Founders need the money to expand their business while investors want to invest to make a positive return through equity.
  • Pre-seed funding: Friends and family
  • Seed funding: official equity funding stage, pitch, typically valued at $3-6m.
  • Series A, after the startup has a track record, must have a plan to generate long term profit. Typically funding = $12.5m.
    • Only 50% of seed-funded startups advance to raising Series A funding
    • Sometimes investors will serve as an anchor, leading the investment round and helps by bringing in more investors.
  • Series B, for companies trying to advance through the development stage.
    • Typical funding = $32m
    • Similar to series A, will have returning investors (normally anchor) but also many new investors
  • Series C, for established companies. Bigger investment firms may come in, like investment banks, private equity funds, and hedge funds. Hope for future growth no longer justify the commitment, numbers and data do now.
    • The money raised is usually used to expand into new markets, acquire other companies, or to develop new products.
    • Normally valued at hundreds of millions of dollars, and can be used to help prepare for an IPO.

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