Entrepreneurs know that a great idea isn’t enough for success. You likely need to develop a credible business plan, conduct market research to ensure product-market fit, build prototypes, market to customers, hire employees, make sales, evolve the products, and so much more.
What does all of this take? Funding—and in many cases, a lot of it. Some entrepreneurs dip into their own capital to bootstrap their startups, while others turn to external investors to provide capital in exchange for equity, or an ownership stake. Entrepreneurs generally raise this money in stages called funding rounds, starting with pre-seed funding, and sometimes extending to Series D and beyond. Here’s what to know.
What are funding rounds?
A funding round takes place when a young company raises money from investors in exchange for partial equity ownership or debt. The startup can use this capital for research and development, expansion into new markets—anything it needs to grow. Investors generally hope to make a profit later, typically through:
- A public stock offering (IPO), when share prices ideally rise
- A sale of the business to another company
Companies generally seek funding in sequential rounds, beginning with seed or pre-seed, then moving through Series A, B, C, and beyond. At each stage, founders hope their business has grown or matured enough to command a higher business valuation.
But increased valuation doesn’t always happen. Sometimes a business must conduct a down round, meaning the company’s value drops from the previous funding round. This might be because the startup isn’t growing as fast as expected, or is encountering adverse market conditions or increased competition.
Whether valuations go down or up, each startup funding round often requires the company to issue new shares, which dilutes the percentage of ownership for the founding team and other existing shareholders.
What is Series D funding?
Series D funding occurs after a business has raised funds in earlier rounds (like A, B, or C). By this later stage, many companies are well established and preparing for a critical event, like:
- Launching an initial public offering (IPO)
- Positioning for a sale or acquisition
Strategic investors at Series D can provide larger sums to help a business reach these milestones. Some founders use Series D funds to:
- Expand into new product categories
- Strengthen the balance sheet by paying down debt
- Achieve significant growth targets before going public
However, a Series D round can also be a red flag indicating the company is burning through cash faster than expected or struggling to hit growth goals. In such cases, it might be a down round, signaling a lower valuation than before—unfavorable for early investors and potentially making it challenging to raise more capital.
Funding rounds from pre-seed to Series E: an overview
- Pre-seed funding
- Seed funding
- Series A funding round
- Series B funding round
- Series C funding round
- Series D funding round
- Series E funding round
Companies can seek funding right from day one, and some continue raising capital even after they IPO. However, not all businesses engage in every funding round—entrepreneurs choose what’s best based on their financial standing and growth strategy. Here’s a look at each stage:
Pre-seed funding
Pre-seed funding comes at a venture’s earliest stage when founders are developing their business plan and first product prototypes. The pre-seed stage funds could come from the founders themselves, along with friends and family. Others raise pre-seed funding from resources like startup incubators or local grants. However, not all startups raise funding at this early stage.
Pre-seed rounds tend to be informal and unpriced, with inventors receiving convertible securities rather than direct equity.
Seed funding
Many startups bypass the pre-seed stage and begin raising capital with seed funding, which is the money that provides the seed from which the company hopes to grow. As with the pre-seed stage, a seed round may be unpriced and come from founders, family, friends, and incubators, typically in exchange for an ownership stake in the business.
Venture capital firms, individual venture capitalists,hedge funds, investment banks, and private equity firms may also invest in early stage startups. Seed stage funding rounds can vary in range from hundreds of thousands to a few millions, with a Carta study citing a median of $3.1 million.
Series A funding round
At this stage, companies usually have some traction with customers and can prove to investors that their business model has the potential for long-term success and profit. Series A rounds are typically led by one firm, which receives a large equity stake due to higher risk. The average Series A round was $18.7 million as of 2023, according to funding platform Visible.
Series B funding round
Companies now have established revenue and an expanding customer base. They use Series B funds to scale—often hiring additional staff, boosting marketing, and refining operations. The average B round in 2023 raised $30 million or more, according to Visible’s study.
Series C funding round
Businesses at Series C typically have significant revenue, a larger customer base, and possibly new product lines. They use capital to expand production or prepare for an eventual IPO or buyout. However, getting to this point is not in itself a guarantee of future success, and businesses seeking this funding must demonstrate viability to potential investors.
According to Visible, Series C rounds in 2023 averaged about $50 million, with valuations often reaching hundreds of millions of dollars (sometimes even $1 billion or more for so-called “unicorns”).
Series D funding round
At this point in the funding series, investors expect startups to be close to an exit or IPO. If the company needs a Series D funding round, it could mean it needs additional capital due to slower growth or other challenges—but some startups just need that final boost to get to an exit. Fundraising can vary depending on these circumstances.
Series E funding round
So few startups make it to this stage that Series E and future funding rounds are relatively uncommon. However, capital-intensive businesses (such as those that rely on a lot of research and development) may require series E funding and beyond. In other cases, companies may need support when market conditions are unfavorable. Or they may simply be on the cusp of major success.
Funding rounds vs. angel investing vs. IPO: What’s the difference?
In addition to raising money from venture capital (VC) firms, entrepreneurs can secure capital through:
Angel investors
Before formal funding rounds, entrepreneurs often seek funding from angel investors, or wealthy individuals who invest personal funds in exchange for an ownership stake. Many angels are experienced founders and may offer guidance on growth strategy or marketplace viability.
Like other early investors, angels want to make a return on their investments, usually in the form of an exit—typically a sale to another company or selling shares on the stock market in an IPO.
IPO
In an IPO—colloquially referred to as “going public”—a private company and its early investors sell shares to outside investors. This process typically involves working with an investment bank to secure commitments from large institutions, pension and endowment funds, and major asset managers to buy shares before they begin trading on the stock market. This helps to gauge investor demand and set an initial market price. Then, at the time of the IPO, anyone can sell or buy the shares. An IPO can infuse a business with substantial capital to fuel expansion and give early investors an avenue to realize returns on their stakes.
Series D funding FAQ
Is Series D funding good or bad?
It depends. Some companies raise capital beyond Series C because they want to explore market expansion opportunities and streamline operations before an IPO or buyout. But some startups seek Series D funding because they didn’t raise enough money before or need more growth for a successful exit.
Do companies go public after Series D?
Some companies go public after a series D, but some don’t. At this point in their life cycle, companies are generally seeking an exit. If market conditions are favorable, that might take the form of an IPO or another liquidity event like a sale. If the market conditions are not favorable or the company’s trajectory falters, the company might seek more funding.
How much do founders own at Series D?
Each funding round dilutes founder ownership, and by the point of later stage funding rounds like Series D, the founders may own only about 10%, according to data from Index Ventures.
Can you pay yourself with seed funding?
Yes, but early seed money usually is invested in building the business. Many founders begin with little or no salary, compensating themselves instead through equity in expectation of a liquidity event.
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