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Startup Funding Rounds Explained – Seed, Series A, B, C, IPO

Capital is the lifeblood of the startup! Irrespective of the stage a startup is at, capital is the only thing that will keep the startup afloat.

A startup goes through many transitional phases from inception to disrupting the market – ideation, building, scaling, market expansion, etc. Since profit in the early years is still a myth, a startup needs financial backing to build, scale and expand.

In this blog, we have encapsulated the journey of a startup shifting through different stages of startup funding -

 

Seed Round

It is the first round of external funding raised by a startup on just an idea or adoption of its idea by the market. Startups based on a revolutionary idea or solving a unique problem manage to garner the interest of small sharks like angel investors who believe in the idea’s potential.

Since it is still early days for the startup, where the probability is high for both success and failure, the funding amount and investors participating in the early-stage funding round are less.

Key Investor – Angel Investors

Startup Focus – Hiring and Product Launch

Amount of Investment – $10k – $1 Million

 

Series A

After tasting the initial success and wide reception from the audience during the product launch, the founder and angel investors decide to dilute the equity to raise a further round of funding to pump up the operations.

The second round of funding is comparatively a larger round of funding with a higher valuation than the previous round. The average time frame to raise Series A funding is typically 2-5 years.

Since the ‘Funding in Ask’ has increased immensely (based on the financial projection of expansion), the round saw participation from new and big players – Venture Capital Firms and Angel Syndicates.

The startup can employ Series A funding to scale and establish a competent user base, generate consistent revenue streams, and meet KPI that pivots towards growth and prepare the startup for its next milestone - market expansion.

Key Investor – Venture Capital Firms, Angel Syndicates with Minimum participation from Angel Investors

Startup Focus – Development, Operation, Branding, and Marketing for Market and User acquisition

Amount of Investment – $10 Million

 

Series B

Startups raising Series B rounds are established and see their product adopted by the broader market. The additional funding gives enough firepower to leverage and test promising theories and draw a competitive business plan, which involves buying niche-aligned businesses to scale and expand market share.

Key Investor – Private Equity Firms, Venture Capital Firms (investors from the previous round who are looking to increase their stake in the company)

Startup Focus – Hiring, Market Expansion, Buying Businesses to Scale

Amount of Investment – $15 Million - $25 Million

 

Series C

The final push to the dreamland – IPO. This round of funding offers a much-needed inspiration to the startup that is already quite successful, and additional funding will only help the startup grow as quickly as possible.

Startups inject this funding into developing new products, expanding into global markets, or even acquiring or merging with other companies to boost their valuation. Therefore, the average Series C funding amount is generally between $30 and $100M, settling on an average round of $50M.

Key Investor - Hedge Funds, Investment Banks, Private Equity firms

Startup Focus – Acquiring Businesses, International Market Mergers and Acquisitions

Amount of Investment – $50 Million

 

IPO – Initial Public Offering

Startups that reach a billion valuation are prompted with the opportunity - either to capitalize on the IPO rush or to keep it private.

If it decides to go public, a startup is eligible to trade shares into the public market. As a result, there's a lot of money floating around in the system, which the startup can use to bolster its business operations.

It is an opportunity to raise an overwhelming amount of capital from the public market, which the investors view as an exit strategy. (Mention – Nykaa)

To conclude, if you have a business idea and want to get funding, this is the most common funding process for startups.

To ensure that you lead with the right resources, we have created a guide to help you overcome the first hurdle – How to raise seed capital?

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