Starting a business requires more than just an idea and a passion for entrepreneurship. Whether it's to develop a prototype, launch a product, or expand an existing business, startups require capital to get off the ground.
The global venture capital investment reached $683 billion in 2021, but despite this increasing interest, the competitive nature of the startup ecosystem makes securing funding a complex and challenging process.
Additionally, startup fundraising has undergone significant transformations in the last decade, resulting in a more diverse and expansive range of funding options available to companies at all stages of their lifecycle.
Looking to raise capital but don’t know where your company fits? This overview of all the startup stages of funding, from early-stage investments to late-stage funding, will guide you.
The first in the business lifecycle, seed fundraising is done during the ideation or prototyping stage. It is intended to help a startup develop its business plan, product, and initial customer base. Entrepreneurs also raise money in this stage to build a team, conduct market research, and establish the foundation for a scalable business model — all of the functions needed to get the business up and running.
Angel investors are often the first source of seed funding for many startups, providing capital in exchange for equity in the company, although some venture capital firms (VCs) also invest this early on, intending to invest more money in later rounds.
Because startups in this stage raise funds off a minimum viable product or a prototype, they are viewed as high-risk investments, but with a high-potential nature. Investors in this startup stage of funding look for companies with unique and innovative business ideas that solve real problems in the market.
For example, Airbnb, which also raised money in this stage, had a clear value proposition: Their founders wanted to provide unique stays and experiences for users at more affordable prices while providing homeowners a chance to earn an extra income.
If you have a solid business plan, an experienced management team, and a clear path to profitability, your company could be an early-stage investment candidate.
After a successful seed-stage round, a startup may seek Series A funding to continue its growth by scaling operations, hiring additional staff, developing its products or services, and expanding market reach. In the startup ecosystem, companies usually raise an average range of $2 million to $15 million in this startup stage of funding, with an average of $7 million.
Series A is the first significant round of funding and is usually raised from more established sources with a history of investing in successful startups such as VCs, corporate organizations, and even some private equity firms.
These investors typically look for startups with the following qualities:
On top of capital, Series A investors may also provide guidance and mentorship to help the startup navigate the challenges of scaling. This is why it’s important for entrepreneurs to seek investors that align with their business goals and industry.
Securing series B funding can be a make-or-break moment for a startup. If successful, it helps the company continue its growth trajectory and become a major player in its industry. However, the extra liquidity at this stage has also led many entrepreneurs into the pitfall of prioritizing growth over other business functions, which impedes long-term success.
Later-stage funding rounds also include Series C, D, and beyond.
These startup stages of funding are often characterized by the participation of venture capital firms, private equity funds, strategic investors, and even public markets. Investors provide funding in exchange for equity or ownership in the business with the hope of profiting in the eventual sale or initial public offering (IPO) of the company's shares.
Securing late-stage funding is easier for entrepreneurs, as mature startups generally have a higher success rate than their younger counterparts.
The amount of funding raised in Series B rounds can vary widely, ranging from a few million dollars to tens of millions of dollars. For example, file hosting service Dropbox raised $250 million in a Series B round in 2011, while Uber raised a whopping $1.2 billion in a Series E round in 2014.
Trends also indicate that the total amount of funding raised in later-stage rounds is steadily increasing over the past few years.
As a startup entrepreneur, you may consider seeking pre-IPO funding if your company is in the later stages of growth and preparing to go public. However, it requires careful analysis of several factors.
Considerations made by private investors at this startup stage of funding include:
Companies may also seek debt financing to bridge the gap between the late startup stages of funding and an IPO. This round is often referred to as mezzanine funding.
Pre-IPO funding is an important source of capital for startups as it supports growth and expansion plans while validating the company's business model and potential.
Looking to raise capital for your company but not sure where to start? PreIPO® can help. With a large network of investors and a streamlined fundraising process, our platform connects startups with global investors and helps them raise capital more efficiently.
We also provide you with due diligence support and access to industry experts.
Explore our platform today and begin connecting with potential investors or contact us to learn more about how we help startup teams navigate the startup stages of funding.
