There are many potential investors in a seed funding situation: founders, friends, family, incubators, venture capital companies and more. One of the most common types of investors participating in seed funding is a so-called "angel investor."

Angel investors tend to appreciate riskier ventures (such as startups with little by way of a proven track record so far) and expect an equity stake in the company in exchange for their investment.

While seed funding rounds vary significantly in terms of the amount of capital they generate for a new company, it's not uncommon for these rounds to produce anywhere from $10,000 up to $2 million for the startup in question.

For some startups, a seed funding round is all that the founders feel is necessary in order to successfully get their company off the ground; these companies may never engage in a Series A round of funding. Most companies raising seed funding are valued at somewhere between $3 million and $6 million.

Once a business has developed a track record (an established user base, consistent revenue figures, or some other key performance indicator), it could be ready to raise additional capital.

The first round after the seed stage is Series A funding. In this round, it’s important to have a plan for developing a business model that will generate long-term profit. Often times, seed startups have great ideas that generate a substantial amount of enthusiastic users, but the company doesn’t know how it will monetize the business.

Typically, Series A rounds raise approximately $2 million to $15 million, but this number has increased on average due to high tech industry valuations, or unicorns. In 2021, the median Series A funding was $10 million.

In Series A funding, investors are not just looking for great ideas. Rather, they are looking for companies with great ideas as well as a strong strategy for turning that idea into a successful, money-making business. For this reason, it's common for firms going through Series A funding rounds to be valued at up to $24 million.

The investors involved in the Series A round come from more traditional venture capital firms. Well-known venture capital firms that participate in Series A funding include Sequoia Capital, IDG Capital, Google Ventures, and Intel Capital.

Series B rounds are all about taking businesses to the next level, past the development stage. Investors help startups get there by expanding market reach. Companies that have gone through seed and Series A funding rounds have already developed substantial user bases and have proven to investors that they are prepared for success on a larger scale. Series B funding is used to grow the company so that it can meet these levels of demand.

Building a winning product and growing a team requires quality talent acquisition. Bulking up on business development, sales, advertising, tech, support, and employees costs a firm a few pennies.

Most Series B companies have valuations between around $30 million and $60 million.

Series B appears similar to Series A in terms of the processes and key players. Series B is often led by many of the same characters as the earlier round, including a key anchor investor that helps to draw in other investors.

Series C

Businesses that raise a Series C funding are already quite successful. These companies look for additional funding in order to help them develop new products, expand into new markets, or even to acquire other companies.

In Series C, groups such as hedge funds, investment banks, private equity firms, and large secondary market groups accompany the type of investors mentioned above. The reason for this is that the company has already proven itself to have a successful business model; these new investors come to the table expecting to invest significant sums of money into companies that are already thriving as a means of helping to secure their own position as business leaders.

The typical number of seed rounds that a company goes through before completing an initial public offering (IPO) is three. However, there is no set number of rounds that must be raised.

Many companies will complete an initial public offering (IPO) after their Series C funding round. However, other companies may need to raise a Series D round to further expand or grow.

Understanding the distinction between these rounds of raising capital will help you decipher startup news and evaluate entrepreneurial prospects. The different rounds of funding operate in essentially the same basic manner; investors offer cash in return for an equity stake in the business. Between the rounds, investors make slightly different demands on the startup.

Company profiles differ with each case study but generally possess different risk profiles and maturity levels at each funding stage. Nevertheless, seed investors and Series A, B, and C investors all help ideas come to fruition. Series funding enables investors to support entrepreneurs with the proper funds to carry out their dreams, perhaps cashing out together down the line in an IPO.