Series A, B, C, & D funding are funding rounds that take place after an initial investment, typically known as the “seed funding stage.” Each round allows investors to partake in an investment in a high-potential startup or small business in exchange for a stake in equityEquity stake refers to the ownership percentage an investor has within a business. This is usually accommodated by a convertible note, which is the financial agreement between the investor and your business.. These rounds typically have various purposes, funding amounts, and valuations, all of which intend to promote the growth and expansion of the business being invested in.
Key takeaways
- Each funding round can include various types of investors who will receive ownership positions in exchange for varying investment amounts.
- Series rounds take place after preseed and seed money stages.
- Not all funding rounds have to be utilized by a business and can be pursued until business needs and stabilization are met.
- The further a business partakes in funding rounds, the more equity is given up and the larger the business scale becomes.
- Investors can include venture capitalists, private equity firms, startup accelerators, hedge funds, and investment banks.
How Series A, B, C & D Funding Works
Funding Round | Investor Types | Purpose |
|---|---|---|
Series A | Angel investors, venture capitalists, and startup accelerators | Stabilize and bring the business to the mass market |
Series B | Venture capitalists and private equity firms | Expand product and delivery, explore new markets, and grow team |
Series C | Venture capitalists, private equity firms, and hedge funds | Prepare for international expansion or initial public offering (IPO) |
Series D | Venture capitalists, private equity firms, hedge funds, and investment banks | Promote expansion further or compensate for lack of capital in previous rounds |
In raising venture capital for a business, Series A, B, C & D funding rounds provide opportunities for a business to achieve its goals by receiving both financial and experiential support from investors.
Each round comes with varying requirements, all with the intention of setting growth benchmarks. Each round also supports a different purpose—whether it be developing products, expanding into new markets, or bringing the company public.
In raising series A, B, C & D funding, not every round has to be utilized by a business. Most companies only make it to Series C, where—at that point—the company is maturing and has a strong reputation and foothold in the market.
It’s worth noting that factors, such as average funding amounts and business valuations fluctuate from year to year, depending on the market.
Series A Funding Round
Funding Round | Funding Amount | Valuation | Preparation |
|---|---|---|---|
Series A | Generally from $2 to $20 million | Average of $10 million to $20 million | Pitch your business plan and growth projections |
Series A is the first funding round after the initial seed stage investments and is usually provided by venture capitalist firms, angel investors, and startup accelerators. Primarily used for stabilization and expanding the business in the market, this stage supports businesses with a working product and a presence in the market.
Since most startups can be unstable in revenue at this stage, series A funding amounts provide funding to businesses that already have a valuable customer base and strong growth trajectory. The total funding amount received will vary depending on business needs and investor interest and is generally anywhere from $2 million to $20 million.
The valuation of a startup at this stage factors in the size of the business, product development, and market fit. Most businesses at this point have a valuation average of anywhere from $10 million to $20 million, but this value can vary greatly depending on the business.
To prepare for a series A funding round, write a business plan, which should be available to investors. This business plan should showcase the business background and structure, financial history, operations and product development, market need, and growth potential.
Series A example: A rapidly growing startup is seeking investments to help it keep up with its business operations and expand. Let’s say it has secured Series A funding via a venture capital firm. The funds are used to gain traction in the market and promote the business to a wider audience.
This round of funding helped stabilize and scale the business operations, provided for the onboarding of more team members, and accelerated product development for expansion into the market.
Series B Funding Round
Funding Round | Funding Amount | Valuation | Preparation |
|---|---|---|---|
Series B | Generally from $5 to $15 million | Average of $30 to $60 million | Show strong evidence of growth and strategy for continued profitability |
Series B is the second funding round and serves to scale the business further and provide expansion of production and distribution into new markets. The primary objectives of this stage include the growth of operations, team structure, and customer outreach.
Funding is provided mainly by venture capitalists; however, private equity firms can invest as well. This stage is valuable since it offers support from investors, both financially and operationally, as they can provide business advice and guidance to help promote overall growth.
Series B funding amounts are to further promote growth by investing in the expansion results of the prior funding round and to divulge the business into new markets and seek a larger customer base.
The amount of funds raised will vary greatly depending on business needs and growth projections and can be driven by the amount of the previous round. Generally, funding amounts can range from $5 million to $15 million.
Obtaining series B funding is often considered the most difficult round to secure successfully as it usually requires proper scaling from prior funding rounds and a high business valuation, in which many startups may fall short.
This is calculated by factoring ownership percentages, along with pre- and post-investment valuations. Generally speaking, the valuation average of series B rounds runs anywhere from $30 to $60 million.
Evidence of growth is the main priority to secure series B funding, as investors will look to your market success and expansion plans. A strategy on continued profitability is essential to convince investors to further support growth efforts and to ensure ample returns on their investment.
Series B example: After continuing business growth and achieving stabilization successfully, the startup decides to promote new opportunities that better serve its customer base. To do so, the business seeks further financial support from investors to develop and market new products.
This funding round then allows for the pursuit of more customers, hiring of more staff to engineer the new products, and further market expansion.
Series C Funding Round
Funding Round | Funding Amount | Valuation | Preparation |
|---|---|---|---|
Series C | Generally from $25 million to $100 million | Average of $100 million to $120 million | Demonstrate strong profit metrics and team |
Series C funding rounds are applicable to successful businesses that exceed expectations of prior funding rounds and are more prevalent in the market. This round is also suited for businesses contemplating plans for international expansion, acquisition, or IPO.
This round tends to have a more selective vetting process since investors receive further diluted equity stakes and try to mitigate risk in preparation for larger-scale expansion or acquisition. These investors are typically more established and can offer experience to help a business acclimate to expansion or acquisition plans.
Funding from a series C round will allow for further product development and capacity to heighten operations to fulfill expectations of moving into international markets, acquisition, or IPO. Funding amounts will vary greatly depending on expansion capabilities and generally fall within a range of anywhere from $25 million to $100 million.
Series C valuations will be tied to profit track records and focus on historical data rather than future company goals. Often, Series C is considered the final funding stage for most companies. Obtaining further investments requires a higher business valuation average, usually anywhere from $100 million to $120 million, although it can often be much higher.
To successfully prepare for international expansion or IPO, a business likely already has a strong foothold in the market and has its operations regimented for consistent profitability. You’ll need detailed proof of this since investors at this stage determine their investments based on the company’s historical metrics.
Series C example: The startup has grown its business further and has broadened its customer base enough to warrant requesting another funding round in pursuit of taking the company public. More investors now partake in funding the business and use their expertise to help facilitate the transition, which promotes business growth and preparation for expansion into international markets further.
Series D Funding Rounds
Funding Round | Funding Amount | Valuation | Preparation |
|---|---|---|---|
Series D | Varies greatly; anywhere from $100 million to $1 billion | Upward of $1 billion | Have a detailed action plan for further fund utilization |
Series D and subsequent funding rounds are fairly uncommon. This is because this stage is usually used to prepare for IPO or acquisition, fund new opportunities, or cushion failed expectations from a previous round.
While ownership is diluted further, businesses can benefit from the expertise provided by these types of experienced investors to navigate the scaling of the business to a higher level. These investors look for companies with significant proven growth capabilities and include venture capitalists, private equity firms, and investment banks.
Because so few companies reach this stage, funding margins are vast and based on business needs. Whether it be a funding boost to launch a new product or to compensate for lack of capital in prior rounds, series D funding can run anywhere from $100 million to $1 billion.
If a company reaches a series D funding round, it is likely well established at this point and has a high valuation that reflects its profitability. Investors can require a valuation upwards of $1 billion, which is a rare target for startups to meet.
Like in previous rounds, a strong record of profitability and overall growth will be necessary to receive funding from investors, especially this far down the line. There will need to be detailed plans for funds utilization and thought as to how to bridge the gap between valuations, if necessary.
Series D example: The opportunity for acquisition has been presented to the startup. To ensure a smooth transition, the startup requests a final round of funding to maintain compliance and heighten the company’s valuation before exiting the business. The funds are used to tie any loose ends and eventually sell the business.
Pros & Cons of Series A, B, C, & D Funding
| Pros | Cons |
|---|---|
| Provides for new product development and expansion into new markets | Means a dilution of ownership the further the funding round |
| Comes with support and guidance from investors to help navigate the growth of a business | Comes with high expectations to provide a return on investment each round |
| Presents an opportunity for higher business valuations over time, which can provide better terms and conditions | Has varying requirements for valuation and funding targets each round |
Who Series A, B, C & D Funding Is Right For
For small or startup businesses considering sourcing financing from investors rather than startup business loans, Series A, B, C & D funding rounds can provide opportunities for businesses looking to grow further:
- Businesses that don’t qualify for traditional financing: If getting a small business loan is unattainable because of limited resources, a business can pursue series funding if they need an alternative financing source.
- Businesses that have surpassed the initial seed funding stages: Series A, B, C & D funding rounds follow initial investment stages and apply to businesses that have already received seed funding and are already operating.
- Businesses with long-term goals for expansion: Utilizing multiple funding rounds can promote a strong growth trajectory if a business has an interest in expanding into international markets in the future.
Frequently Asked Questions (FAQs)
No. Funding rounds can be utilized until business needs are met and can end in various stages.
Yes. The further you partake in funding rounds, the more diluted ownership percentages become.
The valuation of a business is a key factor for investors in determining to further invest in a business. The higher the valuation, the better the chances of receiving further financing.
Bottom Line
Series A, B, C & D funding rounds provide venture capital to small or startup businesses looking for investors to further their business growth. While not every funding round is necessary for each business, it offers the opportunity to reach a wider audience of investors and a way to continue expansion to contribute to the success of a business.
