What is Series A, B, and C Funding – Startup Funding Stages Explained!

What is Series A, B, and C Funding – Startup Funding Stages Explained!

What is Series A B and C Funding: The past two years have emerged as the Startup boom in India. Presently there are over 101 newly turned unicorn startups in India, more than doubling from 46 in 2021.

A unicorn is a startup that is valued at +$1 Billion dollars. However, a closer look reveals that a majority of startups, and unicorns as well, are not profitable. Even the most reputable startups such as Lenskart, Oyo, Flipkart, and PhonePe are loss-making.

So how do they sustain through loss-making years and still operate their businesses? The answer is quite simple and right in front of us – Funding. 

What is Series A B and C Funding image

Realistically speaking, an entrepreneur cannot solely invest the entire capital required for creating a fresh startup. Even in cities like Bengaluru, which is famously dubbed “the startup capital of India”, minimum working capital is needed at all times to operate the business.

The immediate sources of capital for any budding founder are friends and family. In support, they can invest in the business and help further its growth. This is one type of funding called the Pre-seed round.

While it’s enough to get the wheels running, in the long run, the startup will need more capital over time. That is why startups undergo multiple rounds of funding. This article will take you through all the rounds of funding and how it works. 

Pre-Seed Funding Round

A pre-seed round is the phase of funding where the startup has not taken off yet. In a way, it is the first unofficial round of funding that any startup undergoes. Usually, the pre-seed round is funded by close friends and family of the founder to help get the business ready and functioning.

What is Series A B and C Funding capital needed for this round varies from industry to industry? The reason this funding is not considered official is that there is no defined equity stake that is exchanged for capital. 

Seed Funding

This is the stage of funding where angel investors come into play. An angel investor is a person or group of people who make a risky investment in an up-and-coming startup. In exchange, they buy a percentage of the company and optionally get royalties as well.

It is also the first equity funding round of the company. What is Series A B and C Funding in the capital that is generated here is to establish the growth phase or “seed” phase of a startup. An example of angel investors is venture capitalists and VC firms.

The capital generated in a seed round could range anywhere from USD $250,000 to below $ 1,000,000 dollars.

The seed round phase of the startup represents the riskiest phase for investors, founders, and employees. Their performance and success in establishing a solid business model will decide if they receive any further funding. 

Post-Seed Funding Rounds

Know about the series A, B, and C funding rounds here in detail –

Series A Funding Round

Once the startup is up and running with a stable business model, firm goals, and deadlines with a tried and tested product or service, it can raise capital from a Series A round of funding. The goal of this phase is to take up the production on a larger scale. While setting up a base of operations is important, a sizable reach is necessary for profitability. 

Conservative firms such as Sequoia Capital, Tiger Global, and Accel are some notable startup capitalists that have made some remarkable bets such as LinkedIn, Instagram, Swiggy, Flipkart, and Myntra.

For investors at this stage, the risk of loss is lesser than at the seed round as the startups have a defined business model. The goal of this round is to grow their user base. 

Also Read: 10 Indian Fintech Startups to Watch Out For in 2022!

Series B Funding Round

Most firms that reach this phase of funding are looking for one achievement – Expansion. This could include multiple branches, manufacturing facilities, and millions of dollars in sales. The goal is to turn the startup into an enterprise that is feasible on a national scale.

The goals are similar to the previous rounds except for the goals to be achieved. Most startups have a median valuation of $ 20 – 60 million dollars by this stage. 

Series C Funding Round

By the time a startup reaches Series C funding, they are established in the industry and are successful. It is at this phase or above that they reach the “Unicorn” status of +$1 billion dollars. Most problems faced in previous rounds are distant memory. For example, purchasing equipment, talent acquisition, and branding.

Through Series C, startups can launch new products, change their business model and even acquire companies. So a competitor that is up and coming can be absorbed by a better-funded startup. This also gives them a larger market share. For example, The acquisition of UberEats by Zomato.

Side Note: There may be more funding rounds after Series C, even though most startups tend to go for an IPO after the Series C funding round. Series D or E rounds of funding are for pushing expansion before an IPO or achieving goals that weren’t accomplished in previous rounds. 

Top Startups in India - What is Series A, B, and C Funding
Source: Trade Brains Instagram

IPO (Initial public offering)

The final stage of a startup life cycle is the IPO. The private company is ready to go public and issue its shares to the public. Promoters and Venture capitalist firms get to reap their returns when the shares get listed on a stock exchange.

Also, the funding potential through an IPO is exponential as shares of the company are open to the public and anyone can invest in an IPO.

In Closing

That’s all for this article on What is Series A B and C Funding. Hope you have a clearer picture of Startup funding. Do share your thoughts and have a glance through our Courses Section. Happy Investing!

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