An overview of different types of startup funding rounds and what they entail.

When it comes to how startups get funding, there are three main categories:  Equity financing, Debt financing, and Grants 

Equity financing is the most popular form of startup funding, while debt financing and grants are less common, yet valuable.

Debt financing is when startups take loans from banks or financial institutions with interests.

Grants is a support that government agencies offer for small businesses. But not all startups qualify for grants and it also isn’t the easiest option available.

Here are some key differences among these startup funding rounds.

Pre-seeding Round

A pre-seed funding round is a type of financing that aims to get a startup idea off the ground by allowing the founder to work full-time on the project: Here are its salient features: 

• Hire key team members
• Build a proof of concept (POC)
• Develop a prototype or a minimum viable product (MVP)
• Plan a go-to-market strategy
• Gain some initial traction before raising the (next) seed investment round.

Mock-ups, demos, prototypes, and MVPs are examples of production stages.

The amount of the round varies according to the startup’s location, ranging from $50,000 to $1,000,000.

Sources of funding include: bootstrapping*, family and friends, accelerators, business angels, public grants, and crowdsourcing.

— Bootstrapping involves beginning a business with no outside funding and utilizing all available resources, such as working and earning some overtime, taking on a second job, earning revenue through consulting services, and using credit cards.

Seed Funding Rounds – What They Are And Why They’re Important?

If you’re a startup founder, chances are you’ve heard of seed funding rounds. But what are they exactly? Angel investors and seed funds provide the earliest stage of venture capital financing.

The money raised in a seed round finances a company’s early-stage operations, such as product development, market research, and business development.

In exchange for this investment, seed funders receive partial ownership stakes in the company, which they can later sell or cash out through an initial public offering (IPO).

Series A Funding Rounds – Similar To Seed Rounds But Higher Risk!!?

As a startup founder, one of the most common questions we get is – What types of startup funding are available? And, which type is right for my business?

To help answer these questions, we’ve put together an overview of the four most common types of startup funding rounds: Seed, Series A, Series B, and Series C.

In a nutshell, startups go through 3-4 different stages of funding as they grow from infancy to maturity. Each successive round offers less risk than the last but also comes with higher expectations for returns on investment.

Series B Funding Rounds – Involves Financial Investors As Well As The Previous Series 

The most common type of startup funding is series B funding rounds. This involves financial investors as well as the previous series.

A company will try to raise more funds in this round than in the last one to scale its business. The number of funds raised can vary depending on the stage of the company, but it is not uncommon to raise millions in series B funding rounds. 

FACT — The following are some of the other startup funding types:

Series C Funding Rounds- Involves Financial Investors And Previous Series 

D Funding Rounds- Involves Early Stage Financial Investors 

S Funding Rounds- Involves Strategic Investors 

P Funding Rounds- Involves Venture Capitalists. 

Series C Funding Rounds

Series C funding is for enterprise startups that are profitable or showing strong revenue growth. There are various positive and negative points for the series C funding round. 

And finally, there are grants, that government agencies or private foundations offer to support new businesses.

You may be eligible for these funds if you have an innovative idea that has the potential to comprehend a major problem, or provide some form of social benefit. 

Looking at an example (Types of funding) – Various seed, series A, series B, and Series C startups

The important decisions a startup will make are how to finance its operations and future growth. 

There are many options available to founders, each with its own set of pros and cons. Here is an overview of the most common startup funding types – A seed round is the first investment in a company made by outside investors.

Seed investors often take on some risk by investing before launching any product or service.

They are betting that if the company does succeed, their investment could reap huge rewards. Seed rounds range from $500k-$1 million (approx) and provide startups with enough capital to build an initial prototype or a minimum viable product, then launch it into beta mode. 

Series A investments represent the next stage of venture capital financing and involve institutional investors like venture capital firms, angel investors, and high-net-worth individuals investing anywhere from $2 million-$15 million.

Key Considerations: 

— Many businesses must go through several rounds of financing before they can launch their initial public offering (IPO).

— These rounds of fundraising enable investors to put money into a developing firm in return for equity/ownership. 

— Following the original investment, often known as seed money, there are further rounds known as Series A, B, and C.

Summary:

The seed round often occurs when the firm is in its early stages of development, or when the founder has a prototype/proof of concept. 

An angel round is common when a firm is getting started. In this round, the startup needs to generate a large cash flow, which is why it needs modest investment to meet its operating costs..

A seed round and an angel round aren’t two distinct rounds; they might be a hybrid of the two. Regardless of the term, both seed and angel investment rounds often contain a significant amount of capital from friends and family.

Because the firm has little or no track record and the risk is higher than for a more established company, investors will often put in lower amounts in return for stock.