Someone might have a great idea for a startup, but it’s not going to go anywhere without money. Initially, investors will start a business with their own savings or borrow from family and friends. If the company starts seeing success and wants to expand and taps out of money sources, then they’ll reach out to outside investors.
The funding process involves companies pitching to investors to prove their ideas and products are worth the risk. If a startup can persuade an investor to believe in their product and it succeeds, then the startup will eventually ask for more funding as it grows and seeks to expand. These are called funding rounds. Typically, startups will seek investors such as venture capitalists and angel investors to get funding to grow their companies. Before each funding round, a company goes through a valuation. Here’s a brief breakdown of conventional funding rounds from seed to IPO.
Seed:
This is the start of the equity funding process. And it’s for early-stage companies. As the name entails, it’s the funds needed to “plant and water” the seed to help it grow. Seed funding is needed to either start operations of products still in the development stage or move towards their first steps of expansion.
Companies typically asked for $500,000 to $2 million.
Series A:
Series A is for more established startups that are still in the development stage. These companies will already have some track record of relatively stable customers or users and consistent revenue. The funding ranges from about $2 million to $15 million, and are for companies that are ready to scale their business.
Series B:
At this stage of the funding round, a company should already be matured by having a larger customer base and more revenue. These companies have the capacity to be enterprises but need more funding for marketing and business development, hiring talented employees, and more sophisticated technology. Companies at the stage are valued at about $30 million to $55 million and can raise about $30 million in Series B funding.
Series C:
Companies at the Series C stage of funding have a valuation of around $100 million and are already established and reputable. They are looking to work with the largest VC firms and are seeking further expansion whether it be developing and manufacturing new products, or expanding to overseas operations. Sometimes, a company at this level might be looking into an exit strategy for an IPO.
Initial public offering (IPO):
This is arguably the most exciting part of the funding process. If a well-known company reaches this stage, there can be a media frenzy surrounding its IPO and subsequent listing on a major stock exchange such as New York Stock Exchange or Nasdaq.
IPOs have the most funding opportunities, and companies tap into larger institutions for funding. IPOs generate billions of dollars for companies in exchange for equity ownership of their company.
More information: Investopedia, MintyMint
