Series Funding [Types, How it works and More!]

What Are The Different Types Of Series Funding?

Startups raise several Venture Capital firms assets. In multiple rounds of investments, money is raised, and an organisation's value will increase if a startup appears :

1. The chances of accomplishment have increased
2. Evidence of notion
3. Customer base surge etc.

The assessment is performed separately in each round of funding. In order to retain their stake in the company over time, early-stage investors wish to invest in consequent rounds.

What Is Pre-Seed Funding?

• Small investments that you need to start your business are pre-seed funds, also classified as pre-seed money.
• This money may come from relatives, friends, or investors.
• Often, in exchange, people who invest in money become partners in your company.
• This funding stage may occur very quickly or can take a long time, depending on the nature of the organisation and the initial costs set up with the production of the business concept.
• It is also likely that investors are not investing in return for equity in the business at this point.
• In most situations, the company leaders themselves are the investors in a pre-seed funding scenario.

How Does Funding Work?

1. It is crucial to specify the various participants before discussing how a round of funding works.
2. First, there are people who are hoping to receive financing for their companies.
3. It continues to move through the funding rounds as the company becomes increasingly mature; it is typical for a business to start with a seed round and proceed with funding rounds of A, B, and C.
4. Prospective investors are, on the other hand.
5. While investors desire companies to succeed because they encourage entrepreneurship and believe in the interest and cause of those companies, they also hope to get something back from their investment.
6. For this reason, almost all investments made at one or another period of developmental financing are structured in such a way that the part-ownership of the company is maintained by the founder or the investor.

What Is Seed Funding?

• A business that starts first may have restricted access to financing and other sources.
• Banks and other investors may be hesitant to invest because they do not have a reputation or track record, or an indicator of achievement.
• Many startup executives also turn to individuals they meet - family, friends, for initial investments.
• In order to proceed to create an idea for a company or a new product, seed capital is required.
• The cost of making a project typically requires these funds.
• Startups will go to enterprising investors after seed finance security to raise extra money.
• Some seed capital can come from high net worth angel investors.

Money Involved in Seed Funding. Usually, seed funds range between $500,000 and 2million, but depending on the company, they can differ.

What Is Series A Funding?

• After showing success in shaping its business model and demonstrating the ability to increase and produce revenue, Series A funding refers to an investment in a startup company.
• Series A financing is the degree of startup investment that follows the initial seed funding, typically involving investments of tens of millions of dollars.
• Startups can only draw the amount of funding after it has proven a viable business model with high growth potential.
• Funding from Series A helps a startup that has potential but lacks the requisite cash to broaden its activities by recruiting, buying inventory and equipment, and pursuing other long-term objectives.
• In return for their investment and the risk they are taking, Series A financiers usually acquire a significant or controlling interest in the startup business.

Difference Between Seed Capital & Series A Funding

• As the name suggests, seed funding is given when the company has demonstrated an established track record of revenue generation and needs funds to progress to the next level.
• Whereas Series A is after seed financing if the company qualifies to play games with major investors or VC firms.
• Seed capital: Refers to a number of related investments in which a new company with anywhere $50,000 to $2 million is "seed" by 15 or fewer investors.
• Series A: This applies to a limited number of angel investors or VCs who, in return for equity, contribute an average of $2-10 million.

How Does Series A Funding Work?

1. After the startup, let's call it ABC, has established itself with a successful product or business model; it may still lack enough revenue to grow.
2. For more investment, it will then reach out to or contact VC firms or private investors.

Money Involved In A Series A Funding

• The investment in series A funding is usually higher than the seed funding - $3 million to $15 million.

What Is Series B Funding?

• Series B financing is the second round of investment financing for a company, including private equity investors and VCs.
• The Series B round usually takes place when the company has met some milestones in the growth of its business and has passed the initial startup stage.
• Series B funding is the second round of financing for a company that has reached some goals and is beyond the initial startup point.
• Series B investors typically pay a higher share price to invest in a business that Series A.
• Series B usually chooses convertible company shares over common shares due to the anti-dilution aspect of company shares.
• Financing from Series B may be provided by private equity, risk capitalist, crowdfunded equity, and credit investors.

How Does Series B Funding Work?

1. Companies have strengthened their company in the Series b funding round, resulting in higher appraisals during this time.
2. Usually, Series B investors pay the company a higher share price than previous investors.

Money Involved In A Series B Funding?

Series B round is usually between $8 and $10 million.

What is Series C Funding?

• The company that made it part of the C series funding is already very productive.
• These businesses pursue additional financing for the production of new products, the growth of the new markets, or the acquisition of other companies.
• In this funding, investors are injecting their money into a profitable company to double their profit.
• Companies are pursuing Series C financing for further advancement to further enhance their business performance.

How does Series C funding work?

Companies that plan to gain Series C funds are no longer startups. They are typically established, successful companies at the last stage of their growth, with high sales and profits. Their primary outputs or services include a substantial consumer base and enhance significant demand on the market.

Money Involved in a Series C Funding

In Series C funding. The company raises an amount of $25 million. Series C companies are usually valued at between $100 million and $130 million.

What is Series D Funding?

Funding is a little more troublesome for the D round than the previous Serious. Numerous companies end up raising money through Series C, but there are a range of reasons why any company may want to raise Series D.

• The positive reason: More businesses are raising Series D rounds to expand their valuation before they go public. On the other hand, certain companies want to stay private for longer. These are the optimistic reasons for raising funding for Series D.
  
• The negative reason: The company did not achieve the outlook set after raising its Series C round. This is called "down round" because it is when a company earns less revenue than their previous round. A down round can aid an organisation push forward in a critical period, but it also depresses the company's shares.

Money Involved In A Series D Funding

Series D rounds are customarily funded by VC firms. The amount heaved, and company valuation varies greatly as not many startups reach this stage.

Conclusion

• Funding at different levels is primarily constructed in the same basic way.
• Investors provide cash in the back-and-forth for the share of the company.
• Company profiles differ with each case study, but each stage of funding has distinct risk profiles and maturity stages.
• Seed investors and series A, B, C, D investors assist in implementing all the ideas.
• The series of funds empowers investors to assist in realising the dream of entrepreneurs with appropriate funds.

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FAQs

Q. What are the different types of Funding?

• Personal Savings
• Family and Friends
• Crowdfunding
• Angel Investors
• Venture Capital
• Bank Loans etc.

Q. What are the levels of funding?

• Seed Capital
• Angel Investor Funding.
• Venture Capital Funding
• Mezzanine Financing & Bridge Loans
• Initial Public Offering

Q. How do you ask for additional funding?

• Clarify why you need extra
• Define how much you want
• Talk to the sponsor
• Act on the decision

Q. What is the difference between PE and VC?

1. PE firms buy companies across all industries.
2. VCs are focused on biotech, technology companies.
3. Venture capital only acquires a minority stake of less than 50%.

Q. How long does it take to get VC funding?

Ans. Six to nine-month to complete the whole process.