From the very beginning, a startup company with ambitious objectives and solid business ideas wants to conquer the market.
However, to achieve those goals, the founders require capital to develop a product, present it to the market, and build a consumer base.
In this article, you will learn about the 4 funding stages that startups usually go through before reaching an initial public offering (IPO).
What is a funding round A, B, and C?
A startup funding round is a crucial stage in a company's growth where it raises capital from investors to expand operations, develop products, or scale its business. These rounds provide essential financial resources that enable startups and established businesses to achieve their strategic goals.
Funding rounds typically follow a structured progression, starting with pre-seed funding, which helps founders refine their ideas and build a minimum viable product (MVP). This is followed by seed funding, where early-stage startups secure capital to develop their business model, test the market, and gain initial traction.
As startups grow, they move through series A, B, and C funding rounds, which allow them to scale operations, expand their market presence, and invest in product development. Some high-growth companies continue with series D and E rounds, which are aimed at further expansion, acquiring competitors, or preparing for an initial public offering (IPO).
The four core funding stages—seed, series A, series B, and series C—are considered the primary benchmarks for startup growth. Each stage typically involves progressively larger investment amounts, with increasing scrutiny from investors. However, raising capital becomes increasingly challenging at each step. In fact, less than 10% of startups that secure seed funding successfully advance to series A, highlighting the competitive nature of startup funding and the importance of demonstrating strong growth metrics and market potential.
Important: the exact numbers may vary due to the industry. For example, companies in AI or biotech might have higher valuations and higher investment amounts. In the next chapter, you'll find funding rounds explained in more detail.
Overview of startup investment stages
As mentioned before, there are 4 official funding stages: seed, series A, series B, and series C. In this section, let's will discuss different rounds of funding in more detail.
Pre-seed funding
The pre-seed funding stage is the earliest phase of startup financing, occurring before a company has developed a fully functional product or generated revenue. This stage is primarily focused on turning an idea into a viable business concept, covering initial costs such as product development, market research, and assembling a founding team.
Since pre-seed startups typically have little to no revenue, securing funding from institutional investors is rare. Instead, the main sources of capital during this stage are usually the founders themselves, their friends, family, and close supporters who believe in the business idea and its potential. These individuals provide funds to help cover essential startup costs, often without expecting an immediate return on investment.
Occasionally, angel investors may step in to fund a pre-seed round. Angel investors are private individuals who invest their own money in early-stage startups in exchange for equity. Unlike venture capitalists, who typically enter at later funding stages, angels take on higher risks by backing unproven companies at their earliest stages.
Investment amounts at the pre-seed stage can vary widely depending on the business model and industry. However, angel investment rounds typically range from $100,000 to $250,000, with a valuation that can reach up to $500,000, while personal funding from founders and their network may be lower. In some cases, startups may also seek grants, pitch competition winnings, or accelerator programs to supplement their funding.
Because the pre-seed round is informal and often consists of smaller investments, startups typically do not have to give up significant equity or undergo rigorous due diligence at this stage. Instead, the focus is on securing enough funding to build an initial version of the product, validate market demand, and position the company for a formal seed funding round, where they can attract larger investors.
Seed funding
Seed funding is the first official stage of external investment that helps startups transition from concept to execution. At this stage, companies typically have some initial market traction and a minimum viable product (MVP) or an early version of their offering and are seeking capital to further develop their product, refine their business model, and expand their market reach. The goal of seed funding is to provide startups with enough resources to achieve key milestones that will make them attractive for later-stage funding rounds.
Seed funding is raised through equity financing, meaning investors provide capital in exchange for a stake in the company. Unlike pre-seed funding, which is often informal, seed funding typically involves structured investment agreements such as convertible notes, SAFE (Simple Agreement for Future Equity) notes, or direct equity investments. External investments help build a successful business strategy, determine the target market, and pave the way to receive additional funding in the next startup funding stage. Also, startups at this stage use the funding to hire key employees, conduct market testing, and scale their operations to gain traction.
Who invests in seed funding rounds?
While startup founders, family, and friends may still contribute, seed funding rounds attract more formal investors such as angel investors and venture capital firms who are looking for high-growth opportunities. To be more precise, these include:
- Angel investors – High-net-worth individuals who invest their personal money in early-stage startups in exchange for equity.
- Venture Capital (VC) firms – Institutional investors that specialize in funding high-potential startups. Many VC firms have dedicated seed funds to invest in promising early-stage businesses.
- Startup accelerators and incubators – Programs like Y Combinator and Techstars provide funding, mentorship, and resources in exchange for equity.
- Corporate investors – Some large corporations invest in startups that align with their industry or technology strategy.
What is the typical seed funding amount?
The amount of capital raised in a seed round varies based on industry, market conditions, and the startup’s growth potential. On average, seed funding rounds valuation can range from $500,000 to $2 million, but they can be as low as $250,000 or as high as $4 or $5 million, especially in high-growth sectors like tech and biotech.
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Series A funding
Series A funding is the first major growth-stage investment round, where startups move beyond product validation and initial market traction to focus on scaling their business operations and driving long-term profitability. At this stage, startups have typically developed a strong user base, generated some revenue, and demonstrated product-market fit. Unlike seed funding, which is about proving an idea, Series A is about expanding the business model, optimizing monetization strategies, and building a sustainable revenue stream. Investors in this round look for startups with a clear plan for long-term scalability and a strong competitive edge in their market.
How does Series A funding work?
Series A funding is usually raised through equity financing, meaning investors provide capital in exchange for ownership shares in the company. The funding process involves:
- Pitching to venture capital firms – Startups present their financial performance, growth metrics, and market opportunity to institutional investors.
- Negotiating valuation – Investors assess the company's traction, revenue, user growth, and business model to determine its valuation.
- Dilution of equity – Founders and early investors must be willing to give up a percentage of ownership in exchange for larger capital injections.
- Increased due diligence – Investors conduct thorough financial and operational analysis to ensure the startup has a viable path to profitability.
Unlike earlier stages, where fundraising can be informal, Series A funding typically involves term sheets, legal agreements, and structured investment rounds led by institutional investors.
Series A funding primarily attracts venture capital firms, as they seek startups with strong growth potential and a clear monetization strategy. Some of the other notable Series A investors include angel investors and Corporate Venture Capital (CVC). Series A investors look for companies that demonstrate strong growth potential, recurring revenue, and a scalable business model. They expect startups to have clear KPIs (key performance indicators), such as customer acquisition cost (CAC), lifetime value (LTV), and revenue growth rates, to prove their ability to scale successfully.
What is the typical Series A funding amount? The amount of capital raised in a Series A round varies depending on industry, market conditions, and investor interest. Overall, the financial resources for series A funding could be be between $2 and $15 million.
Series B funding
Series B funding is the third stage of investment for a startup and is designed to help well-established companies scale their operations, expand their market reach, and meet increased demand. At this stage, the business has already proven its viability with a successful product, a growing customer base, and strong revenue generation. The focus shifts from initial market penetration to scaling the business model, increasing operational capacity, and strengthening the company’s market position.
Like previous funding rounds, Series B financing is raised through equity investment, where companies offer shares in exchange for capital. However, the due diligence process becomes even more rigorous at this stage, as investors expect clear financial metrics and a strong growth trajectory.
Key aspects of the Series B funding process include:
- Higher valuations and greater expectations – Investors assess the company’s revenue growth, customer retention rates, profitability potential, and competitive advantage.
- Equity dilution for larger investment – Founders and early investors may experience further dilution in ownership as more capital is raised.
- Lead investors and syndication – A lead investor (often a venture capital firm) typically spearheads the round, with other investors joining in syndication.
Unlike Series A, where companies prove they can generate revenue, Series B funding requires companies to show that they can scale profitably and maintain a competitive edge.
Who invests in Series B funding? The investors involved in Series B funding are similar to those in Series A but with a stronger focus on later-stage growth. They include venture capital firms, growth-stage venture capitalists, Corporate Venture Capital (CVC), and private equity firms. Investors in Series B funding rounds are less willing to take risks than those in earlier stages. Instead, they prioritize startups that demonstrate strong financial performance, sustainable growth, and a clear path to market leadership.
Series B rounds involve significantly larger investment amounts compared to previous stages. The average Series B funding round could be between $15-$25 million or more.
Startups that successfully raise Series B funding are well-positioned to dominate their markets and prepare for Series C funding, which focuses on scaling even further, expanding internationally, or preparing for a potential exit strategy such as an IPO or acquisition.
Series C funding
The companies that are interested in series C funding are usually the ones that are looking to develop new products, conquer new markets, or acquire competitor companies in other regions. Also, it could be used to support the startup for an initial public offering.
In this stage, hedge funds, private equity investors, investment banks, and some other investors join the list of existing investors. During the series C round, investors provide additional funding in hopes to get at least double the amount back.
One of the reasons for this influx of investors is that, for example, private equity firms are usually interested in already established and successful companies with a proven business model rather than early-stage startups.
These institutional investors fund the company with large amounts of money, expecting to secure their positions as business leaders and not miss out on good business opportunities.
The average amount of money raised in series C funding could go as high as $100 million - and even higher. The average amount is around $26 million.
Initial public offering (IPO)
An initial public offering (IPO) is the process by which a private company becomes publicly traded by offering its shares on a stock exchange. This transition allows the company to raise significant capital from institutional and retail investors, providing funds for further expansion, debt repayment, or strategic acquisitions. IPOs also offer early investors, including venture capitalists and private equity firms, an opportunity to liquidate their holdings and realize substantial returns on their investments.
The IPO process involves rigorous financial scrutiny and regulatory compliance. Companies must file an S-1 registration statement with the Securities and Exchange Commission (SEC) in the U.S. or the equivalent regulatory body in other countries. Investment banks typically underwrite the IPO, setting the share price and helping market the offering to investors. Once public, the company is subject to increased transparency, shareholder expectations, and regulatory requirements.
Usually, startups go through 3 seed funding rounds before completing an IPO. Most companies finish their journey to IPO on the series C funding round, but some companies proceed to series D, E, F funding and more to grow further. Series D funding is a continuation of series C that entails more money. The same applies to series E, F, and others.
Other startup funding types
In addition to traditional funding rounds like seed, Series A, B, and C, startups can explore alternative funding methods such as crowdfunding and loans. These options provide additional avenues for securing capital, especially for startups that may not yet attract institutional investors or venture capital firms.
Crowdfunding: raising capital from the public
Crowdfunding is a collective fundraising approach where startups gather small amounts of money from a large number of individuals, including family, friends, customers, and early supporters. This method is primarily executed through online platforms and social media, allowing startups to reach a broad audience.
There are different types of crowdfunding:
- Reward-based crowdfunding – Backers contribute funds in exchange for early access to products, exclusive perks, or branded merchandise. Popular platforms include Kickstarter and Indiegogo.
- Equity crowdfunding – Investors receive shares in the company rather than products or perks. This model allows startups to raise funds without relying on venture capital. Examples include SeedInvest and Crowdcube.
- Debt crowdfunding (peer-to-peer lending) – Individuals lend money to a startup with the expectation of repayment with interest. Platforms like Funding Circle and Prosper facilitate this type of funding.
Crowdfunding is an excellent option for startups that struggle to raise money through traditional venture capital channels. It also serves as a marketing tool, helping companies generate early traction and build a community of engaged customers. However, it requires strong storytelling, a compelling product, and an effective online campaign to succeed.
Loans: borrowing capital with repayment obligations
Loans are another way for startups to secure funding, but they come with financial obligations that make them less attractive compared to equity-based investments. The most common type is a bank loan, where founders borrow capital and must repay it over time with interest, regardless of the company’s success or failure.
There are several types of loans available to startups:
- Traditional bank loans – Startups can apply for small business loans from banks, but they often require a strong credit history, collateral, or personal guarantees from founders.
- Government-backed loans – Some governments offer low-interest loans or grants to support early-stage startups.
- Revenue-based financing – Some lenders offer funding where repayments are tied to a percentage of the company's future revenue rather than a fixed schedule.
While loans provide startups with funding without giving up equity, they pose a financial risk because repayment is mandatory, regardless of whether the business succeeds or fails. In contrast, venture capital funding does not require repayment, because investors take equity in the company and share in its success.
Startups must carefully evaluate their funding needs and risk tolerance before choosing between crowdfunding, loans, or equity financing. While crowdfunding and loans provide alternative pathways to raising capital, venture capital and institutional funding remain the preferred options for startups aiming for rapid growth and scalability.
How series funding rounds work
To summarise, series funding rounds are a structured process through which startups raise capital at different stages of their growth. Each round—seed, series A, series B, and series C (and beyond)—serves a distinct purpose and involves different types of investors.
- Seed funding – The first official funding round where startups secure capital to develop their product, conduct market research, and build a team. Investors typically include founders, angel investors, and early-stage venture capital firms.
- Series A – Startups that have established a user base and revenue model raise series A to scale operations and optimize their business strategy. This round is led by venture capital firms with some continued participation from angel investors.
- Series B – Companies that have proven their market fit and revenue potential seek series B funding to expand market reach, increase staffing, and enhance infrastructure. Investors include growth-stage venture capital firms and private equity players.
- Series C (and beyond) – Late-stage startups raise series C funding to expand internationally, develop new products, acquire competitors, or prepare for an IPO. New investors such as hedge funds, investment banks, and corporate investors participate in this round.
Key aspects of series funding rounds
Startup funding follows a structured path, with each round bringing new investors, higher valuations, and greater capital. As companies grow, investor expectations shift, and funding amounts increase, ultimately shaping their journey toward expansion or exit strategies like an IPO or acquisition.
- Equity-based investment – Investors provide capital in exchange for ownership stakes, with startup valuations increasing at each stage.
- Investor expectations – Early-stage investors take more risks, while later-stage investors seek proven business models and strong financials.
- Capital growth – Each round raises progressively larger amounts, with series C funding often exceeding $50 million.
- Path to exit – After series C, companies may proceed with further funding rounds, an initial public offering (IPO), or an acquisition.
Understanding how series funding rounds work helps startups navigate their growth journey and attract the right investors at each stage.
Startup funding sources
Startups have various funding options, each with different benefits and risks. Founders may start by bootstrapping with personal savings or seek capital from angel investors, venture capital firms, or private equity investors. As companies grow, hedge funds and investment banks play a role in late-stage funding and IPO preparation. Alternative options like crowdfunding and loans also provide access to capital, each with unique financial implications. To sum up, here is a list of startup funding sources:
- Own money (bootstrapping) – Founders use personal savings or credit. Provides full control but carries financial risk.
- Angel investors – High-net-worth individuals investing in early-stage startups for equity. Often provide mentorship and networking.
- Venture capital firms – Invest in high-growth startups from seed to later funding rounds, offering capital and strategic guidance.
- Private equity investors – Focus on mature startups, often using buyouts or mergers to increase profitability.
- Hedge funds – Invest in late-stage startups (series C and beyond), seeking high returns before IPOs.
- Investment banks – Facilitate large funding rounds, mergers, and IPOs for scaling startups.
- Crowdfunding – Raises capital from a large number of individuals via platforms like Kickstarter (rewards) or SeedInvest (equity).
- Loans – Includes bank loans, government-backed loans, and revenue-based financing. Requires repayment, regardless of business success.
Summary
Startup funding progresses through pre-seed, seed, series A, B, and C rounds, each marking a growth milestone with increasing investments. Pre-seed and seed funding, often from angel investors and early-stage VCs, helps develop the product and test market viability. Series A attracts VCs to refine operations and expand market reach. Series B focuses on scaling, with funding from growth-stage VCs and private equity firms. By series C, well-established startups seek capital for expansion, acquisitions, or international growth, drawing interest from hedge funds and investment banks. Beyond series C, companies may raise additional rounds or go public through an IPO, allowing them to scale further and establish market leadership.
