By Fernando Berrocal

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If you’re a startup founder, you’re likely aware that the process of raising money may be difficult. However, if you are successful, you gain the funds necessary to grow your business. Despite the difficulties, many fledgling companies still receive financing every year. Founders are prepared to accept these risks in exchange for a chance to survive–and turn a profit.

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Q&A

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Q: What are some of the most popular sources of funding for startups? 

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A: The earliest stage of funding is pre-seed funding–which many don't even recognize as a step in the cycle. A pre-seed business is often centered on a small idea. The founders will collaborate with their friends and family to raise money. The amount of investment a founder may anticipate at the pre-seed funding stage is hard to forecast, however, it is often lower than seed capital.

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Q: What does seed money mean? 

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A: Seed investment is the initial amount of money that businesses raise. A business may also engage in pre-seed fundraising to be ready for a conventional round of financing stages. The “seed planted” during this stage is intended to expand your business to its first stages (such as product development or market research). Family, friends, and crowdfunding sites like Kickstarter are the most common investors. They might also be venture capital firms (VCs) or incubators that specialize in providing seed money for new businesses.

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Many startups come to an abrupt end during this stage. Either they'll succeed and get bought, or they'll fail. On the other side, some firms that have secured initial investment might not be motivated to raise further capital or expand. They can decide to stop there since they believe they have found success with their present investment.

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Q: How much money goes into the early phases of funding a startup?

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A: Typically, a seed round ranges between $500,000 and $2 million. However, the amount of cash a firm receives might vary based on the valuation they're seeking.

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Types of Funding 

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Several stages come after startup funding. The startups in this series are referred to as Series A, B, and C.

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Series A Funding: A Series A funding round is when a startup's seed investors will return with an offer for Series A.  These startups have achieved success and moved on to the following round of fundraising. Startups must have a plan for how they will generate revenue before raising Series A funding. Moreover, they must spend the money earned on activities that boost sales.

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What is the average investment in a Series A startup funding stage?  When it comes to the second round of investment, investors will need more than an exciting concept. It must be demonstrated that the business will be profitable; you can´t assume that. Find a strong anchor since the initial investment frequently leads the rest of the capital partners to follow. However, finding an investor is not the only consideration. Before the round closes, more investors could leave if you lose the first one.

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Remember: there are several choices when seeking finance. Series A capital is often obtained through VC firms, however, more businesses are now using equity crowdfunding. A crucial stage in the life of a business is the Series A crunch. In this situation, even companies that were successful in their seed round frequently struggle to obtain investment in later stages.

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Series B Funding: When a startup is ready to secure Series B financing, they have already established their market fit and need help growing. Expanding your client base and staff is not the only thing that takes place when seeking a Series B investment. It tends to also be beneficial to concentrate on entering new markets during this stage. Startups must employ great workers, but it may be difficult since founders often wear many hats. If you want the members of your startup team to be paid competitively, you must raise money.

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Typically, Series B rounds range between $7 to $10 million. Depending on the size of the round, it may be assumed that the firm will be valued in the region of 30 to 60 million. There are a few things to be aware of if you're a business looking for Series B investment. The first is that many of the investors that led your prior round of financing will also be leading this one so they can maintain a sizable portion of ownership. At this point, VC organizations often purchase the most successful businesses, meaning they have already realized large profits.

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Series C Funding: When a startup reaches this fundraising level, it often is performing well and is prepared to expand into new areas, make acquisitions, or create new products. Before an Initial Public Offering (IPO) or purchase, these organizations frequently seek to expand their product's market and/or improve valuation. The majority of businesses only increase Series C; however, some do raise Series D or higher. However, before they are prepared for an IPO or acquisition, the majority of businesses require Series C financing.

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What is the cost of a Series C startup fundraising round? Startups in the Series C round are typically valued at around $100 million. This amount has grown, and businesses that qualify as "Unicorns" may be valued considerably higher. At this level, value is determined by factors like revenue and customer data. Banks, private equity funds, and VC firms frequently provide Series C capital. Hedge funds are another choice. Major financial organizations may be interested in funding a firm once it has demonstrated its value and capacity to make money. If previous investors are feeling secure, they could decide to invest even more.

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Initial Public Offering (IPO): Businesses go through several financial phases while raising capital. The last phase is an IPO, where investment bankers agree to sell a specific number of shares at a specific price to obtain the required capital. These shares are available for purchase and sale on the stock market. However, when they thrive, businesses earn more prestige and investors stand to gain a significant amount of money. This isn't always the case, though–an investor can obviously lose money if things don't go well.

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Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.