Series Funding: Main Series Funding Rounds Explained

Statistics show that as much as 90% of startups fail. At the same time, 38% of startups fail because they run out of cash. This highlights the importance of timely investments in a startup to help it thrive and grow. In this article, we focus on series funding as a way for a startup to raise capital. 

What are the main stages of series funding? How many rounds of funding before an IPO a startup needs to undergo? What are pre-seed funding and seed funding? Find answers to these and other questions about series funding in this article.

What is series funding?

Series funding is a type of equity funding wherein a startup can raise capital through a multi-round process. 

Series funding investment generally includes Series A, B, and C funding rounds with pre-seed and seed funding preceding. However, some startups go further for Series D and Series E funding in case goals are not achieved with the previous funding stages or as a final push before an initial public offering (IPO).

How does series funding work?

In a series funding process, there are two main sides of participants: startup owners and outside investors. 

Startup owners seek an opportunity to get funding for a new business and develop it. Investors hope to gain something back from their investment in a startup business and that’s why they’re interested in the business growing. 

By series funding, startup owners who are limited in cash get a chance to raise money from outside investors in exchange for equity. This way, a startup gets the needed capital for growth and an investor gets an ownership stake in a startup with the possibility to benefit from its development and increase the return.

The whole series funding process (simplified) looks like this:

• Starting out (Seed funding). The company gets its first money from founders, friends, family, or early investors to build their product and start the business.
• Getting bigger (Series A funding). Once the product is ready and has some users, the company seeks more money from investors to grow the user base and improve the product.
• Expanding (Series B funding). With a growing product and more users, the company raises more money to expand to new markets, hire more people, and scale up operations.
• Going even further (Series C funding). The company is now quite successful and raises even more money to become a major player in the market, develop new products, or enter international markets.
• More rounds (Series D funding and beyond). If needed, the company can raise additional rounds of funding to support further growth and delay going public.
• Investors getting shares. In each funding round, investors give money to the company in exchange for ownership shares.
• Reaching goals. The company uses the money to reach specific goals, like increasing sales or developing new features.
• Successful exit. Eventually, the company aims to go public or be bought by a bigger company, allowing early investors to sell their shares and make a profit.

We describe series rounds of funding for startups in more detail further. 

Funding valuation best practices

Before going into the series of funding rounds, a startup company is first thoroughly evaluated by analysts.

Evaluation is performed based on many factors and by means of different evaluation methods depending on the case.
We recommend paying most attention to the following factors while assessing the startup’s investment potential:

• Market size. This implies assessing the size of the market the startup business is planning to operate in.
• Market share. This is about checking how much of the market the startup business is planning to make up (or already makes up).
• Revenue. This is an estimate of how much the startup has made and will make. This is a market size multiplied by the market share.
• Return. This is an estimate of the increase in value in the percent form of how much is invested. This figure is based on the estimate of the growth in market size, market share, and revenue.
• Multiple. This is an estimate used by an investor to understand the startup’s value, like 5x or 20x the revenue.
  

Note: Considering the amount of information analysts have to deal with when performing a startup evaluation, using a fundraising virtual data room software can be of great help. Virtual data rooms allow for securely storing and sharing large volumes of sensitive data and enable effective collaboration between involved parties.

Series funding rounds explained

Now, let’s discuss in more detail what’s presupposed by each of the main startup funding rounds and define their differences.

Round	Goal	Investors	Capital raised	Equity stake
Pre-seed	Initial product development	Founders, family, friends	Up to $1 million	N/A
Seed	Further product development and a viable business model	Angel investors	$1 million – $3+ million	15%
Series A	Product scaling and customer acquisition	Early-stage venture capital firms	$2 million – $15+ million	15% – 25%
Series B	Market expansion, product scaling	Later-stage venture capital firms	$5 million –- $50 million	10% – 20%
Series C	International markets, other business acquisitions, preparing for an IPO	Late-stage venture capital firms	From $30 million to hundreds of millions	Around 15%

Pre-seed funding

This is the first round of funding that comes so early in the process that it’s not even typically included in the funding rounds. The main goal at this stage is to support the startup’s initial product development, market research, and early operations. 

The investors at this stage are mostly founders themselves and their close circle: friends and families. Often, pre-seed investors don’t get equity in the company in exchange for investing.

Funds raised during this stage typically range from several thousand to $1 million. 

Seed funding

Seed funding is the first official equity funding stage that helps a startup business officially get off the ground. The main goal at this stage is to support further development of the product, assemble a team, research the market, build a viable business model, and define the target audience. It’s about getting the product to a stage where it can attract larger investors.

The main investors of the seed money are angel investors. However, incubators and venture capitalists may also contribute. The average amount of equity investors can get at this stage is about 15%.
Seed funding is often an endpoint for startups. In fact, only about 10% of seed-funded companies proceed to the Series A funding round.

Seed capital raised at this stage typically ranges from $1 million to $3+ million. The average median in the US was about $3.6 million in 2023.

Series A funding

This is the first funding round of venture capital financing after the seed round. The round gets its name from the preferred stock that is sold to investors at this stage.

Companies going through this round are typically valued at more than $50 million. This is because for investors at this stage, it is important that a company has more than just a product, but rather a go-to-market strategy and a viable business plan. 

Series A funding focuses on scaling the product, acquiring customers, and refining the business model. The goal is to establish a strong market presence.

Typical investors at this stage are venture capital firms. Leading venture capital firms include Google Ventures, ZhenFund, and Index Ventures.

Funds raised during Series A funding range from $2 million to $15+ million. As of 2024, the median for the US was $18 million. In exchange for investment, investors expect around 15% to 25% of equity.

Series B funding

This is the second round of venture capital funding. It focuses on scaling the business significantly, expanding market reach, increasing sales, and enhancing product development.

Basically, Series B is similar to Series A regarding key processes and players. However, during the Series B round larger venture capital firms specializing in later-stage investing are typically engaged. These include Google Ventures, General Catalyst Partners, and Khosla Ventures.

Besides venture capital firms, strategic investors such as large financial institutions or corporations may contribute. They can get from 10% to 20% of equity.

Capital raised during Series B funding ranges from $5 million to $50 million with the 2024 median in the US being $35 million.

Series C funding 

This is typically the last funding stage as very few companies usually proceed further to Series D or Series E. 

This round focuses on further scaling, expansion into new markets, acquisitions, and preparing for an IPO or exit strategy.
The main investors at this stage are late-stage venture capital firms, hedge funds, investment banks, private equity firms, and other investors. They invest in a business expecting to get more than a double back. The average amount of equity investors receive at this round is 15%.

Capital raised during this stage ranges from $30 million to hundreds of millions. The 2024 US median is $50 million.

6 challenges and downsides of series funding

Series funding, while providing essential capital for growth, comes with several challenges and downsides. Here are the main ones:

1. Dilution of ownership. Each round of funding typically involves issuing new shares, which dilutes the ownership percentage of existing shareholders, including founders and early investors.
2. Loss of control. New investors, especially in later stages, often demand significant influence or control over business decisions, potentially leading to conflicts with the original vision and strategy of the founders.
3. Pressure to scale quickly. Investors expect rapid growth and returns on their investment, which can lead to unsustainable business practices, premature scaling, and increased operational risks.
4. Increased reporting and accountability. With each funding round, the level of scrutiny and reporting requirements typically increases. Founders may need to spend more time on investor relations and less on running the business.
5. Valuation pressures. High valuations in later funding rounds can create unrealistic expectations for future growth and profitability. Failure to meet these expectations can harm the company’s reputation and future funding prospects.
6. Exit pressure. Investors usually seek an exit within a specific timeframe, which can push companies towards premature IPOs, mergers, or acquisitions, potentially not in the best interest of the company’s long-term strategy.

Series funding examples

Now, let’s briefly review three examples of real series funding rounds.

Series A example

Company: Airhouse

Year: 2021

Amount raised: $11 million

Investors: Led by DNX Ventures, with participation from Lightspeed Venture Partners, and others.

Description: Airhouse offers a logistics platform for e-commerce brands, providing a seamless way to manage and automate their shipping and fulfillment processes.

Series B example

Company: Deel

Year: 2021

Amount raised: $30 million

Investors: Led by YC Continuity Fund, with participation from Andreessen Horowitz, Spark Capital, and others.

Description: Deel is a global payroll and compliance platform that helps companies hire employees and contractors in over 150 countries quickly and compliantly.

Series C example

Company: Hopin

Year: 2021

Amount raised: $400 million

Investors: Led by Arena Holdings and Altimeter Capital, with participation from IVP, Tiger Global, and others.

Description: Hopin is an online events platform that allows users to create, host, and manage virtual and hybrid events, providing tools for networking, breakout sessions, and more.

Summing up

Let’s briefly summarize the main points from the article:

• Series funding is a process of a startup raising capital through multiple rounds.
• The main rounds of series funding include Series A, Series B, and Series C. Before them, the startup also undergoes pre-seed funding and seed funding stages.
• Before initiating the series funding process, a startup is first evaluated by analysts. They mainly focus on market size, market share, revenue, multiple, and potential return on investment.
• The main challenges of series funding include dilution of ownership, less of control, pressure to scale, increased reporting and accountability, and more.