Startup: So What The Heck is the Difference Between Series A, B and C Rounds of Funding?

In the startup world you often see headlines of company X raising a gazillion dollars in a Series A, B or C round of funding. What does this actually mean? Like most people on the outside looking in all I really knew was the companies were receiving funds in order to continue growing their businesses. Anything after that was Greek to me.  I decided to dive a little deeper and here’s what I discovered.

  • Seed Round – So you’ve  come up with a great idea but you need funds to get the idea off the ground and really test if there’s a market for your product or service. You’re planting the seed for your business. Once you’ve tapped out of finances from friends, family and your personal stash to jump start the business, in comes Angel investors. These investors typically provide the funds for this early stage of your business for a percent of the company, naturally. Angel investors are wealthy individuals with a minimum net worth of $1 million who  earn over $200k per year in income. During the Angel round of investing startups typically raise $150k to $2m.
  • Series A Round – Now that the business has developed a track record and has exhibited good signs that it’s a going concern it’s time to improve the product and begin scaling up. This is where the big boys and ladies come in. Venture Capital firms invest heavy paper aka boat loads of cash in exchange for their piece of the pie (of course) and lending their expertise and knowledge. Series A rounds typically raise approximately $2m to $15m.
  • Series B Round – This round is similar to the previous one. Many of the same VC players are involved. The goal here is expanding the company’s reach, acquiring the proper talent for the organization, increased marketing and advertising takes place in this round. The funds raised at this stage run between $7m to $10m.
  • Series C Round – At this point you’re clearly a successful company. You may need funds for a strategic acquisition, or  expansion into foreign markets, etc. In addition to the VC firms, Angel and other early investors you have some new faces.  Hedge Funds, Investment Banks and Private Equity Bankers enter the fray here. They have a ton of cash and expertise that they infuse into the company to continue the expansion.
  • IPO – The Investment Bankers can help bring the company to public markets via an “Initial Public Offering.” This allows us common folk to get a piece of the pie by purchasing shares via our favorite trading platforms/brokerages. We own a portion of the company and in exchange they receive funds (the cost of each share purchased) to further develop the business.

 

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Now you know your A,B,C’s!

 

Martel

Check out Investopedia for more details on the different stages of funding.