You’ve fleshed out your business idea, gathered some partners to get started and maybe even created a product prototype, but how do you move on to the next step and scale your business?
For many businesses, the answer is funding. Access to capital is cited over and over by small business owners as one of their biggest challenges, but it’s not impossible to do. Understanding how the process works is the first step toward securing the funding you need.
What is a funding round?
When seeking out funding from venture capitalists and other investors, startups and small businesses rarely receive all their funding in one lump sum. Instead, they receive funding in several rounds, each designed to get to the business to the next milestone. During each round, executives will meet with various investors and pitch their business idea and explain what they plan to do with the funding and what else they need to make their business successful.
Keep in mind that if you raise a round of funding through venture capital firms, you are receiving the money in exchange for an equity share in your company. This is an important consideration if you are wary of giving up control of your business.
[Read: A Practical Guide to Funding Your Small Business with Business Loans and Beyond]
Funding rounds are divided based on the goals of each individual business.
Typical funding rounds
Funding rounds are divided based on the goals of each individual business. If you’re an established startup seeking money from venture capitalists, you’ll be going after Series A, B or C funding. However, if your startup hasn’t launched yet, you may qualify for earlier stage funding from other sources.
Pre-seed
Pre-seed funding rarely comes from big-time investors at investment firms. This type of funding comes mainly from personal savings, friends and family members, either by borrowing or through crowdfunding campaigns. Some local angel investors or business owners can also participate in the pre-seed round. Startups at the pre-seed stage are still developing their business and need the funding to get off the ground.
Seed
The first official round of funding is called the seed round, where business owners gather capital to get things up and running. Typical tasks that occur during seed funding include market research, product development and other logistical aspects of running a business. While some venture capitalists and other investors may be interested in participating in this round, it’s best to look for local angel investors or equity crowdfunding at this time.
Series A
Series A is where your business will hit the ground running. Investors are looking for an established business with a proven track record of early success. While an efficient problem-solving idea is crucial for any business, Series A investors are looking to learn how you plan to turn your great idea into a multimillion-dollar empire. This is also where benchmarks for success are defined. According to Investopedia, the Series A round consists of anywhere between $2 million to $15 million in funding.
Series B
Series B is a funding round focused on taking the business to the next level. With both the seed and Series A rounds done, Series B is for acquiring capital in order to meet growing demand for your product or service, expand market research and develop your business. Series B usually consists of funding between $7 million and $10 million.
Series C
The Series C round is for scaling the company’s vision and further expanding the business into new territory. Series C funding rounds are for businesses that are very successful and need more capital to continue scaling. In addition to Series C, there are also Series D and Series E rounds that accomplish similar goals.
Your funding journey will vary
Your type of business and specific company situation means that your growth experience will vary widely. While this is a basic roadmap, it’s not the only defined path to success for businesses.
In addition to raising capital, there are several other business financing options, including loans and grants. Check out our business financing guide for more details.
CO— does not review or recommend products or services. For more information on choosing the best business loan and financing options, visit our friends at business.com.
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