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Relying on equity funding for financial management can be a long, demoralizing and difficult task. If successful, we can see an entrepreneur and their organization grow. A major challenge is the time required to raise these funds. After all, the idea may be brilliant but convincing an investor to invest millions into it isn’t an easy task. A major challenge in startup series funding is that it expands with each round. This means there are more people involved, from employee to investor, as the rounds progress, changing the dynamic of the cash flow structure each time. Sometimes, investors not only expect financial portions but want to have their say in influencing decisions of the organizations. One such famous case is Uber, whose founder was ousted after conflicts.
Pursuing equity fundraising will mean exchanging stakes in the organization and its performance moving forward. It’s one of the most sought-after capital forms and certainly the least available. Simply put, there’s a gap in demand and supply—for every equity investor, there are at least 1,000 founders with ideas that can ‘revolutionize’ an industry.
But despite all the challenges, startups do manage to raise funds every year.
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Series ABCD Funding: How It Works
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Series A Funding
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Series B Funding
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Series C Funding
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Series D Funding
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How To Get Series ABCD Funding
Series ABCD Funding: How It Works
Say an organization with a brilliant business idea is trying to get its operations running. With help from friends, family and founders, they start well and show steady growth with their business model and product. As business begins to grow, their consumer base grows and the organization expands its operations. They steadily rise through the ranks to compete with leaders and are highly valued in the market, with the possibility of expanding further in the future.
This hypothetical business story is too good to be true because very few organizations can grow with such a model. In reality, for startups to be successful, they have to engage in several rounds of external funding to raise capital. These rounds of funding allow external investors to invest cash in a promising business in exchange for equity or a share in the organization. Startup series funding is a necessary ingredient for businesses to survive based on potential and numbers, instead of shutting down brilliant ideas for the lack of funds.
Before exploring the rounds of funding, we need to identify the different participants. First, there’s the entrepreneur, organization or startup looking to raise funds and advance through the funding stages as a business matures. Then there are potential investors who invest money into lucrative ideas and models in exchange for shares and decision-making rights. The most important part to execute these rounds comes with valuation. Analysts look at factors such as management, track record, risk and market size to value the business and evaluate growth prospects and maturity level.
Series A Funding
Before we delve into Series A funding meaning, we need to understand seed funding. Seed funding is the money that an enterprise raises at the beginning. It acts as the seed that’ll help the organization grow. Series funding can be considered a continuation of seed funding.
Once an organization makes it past the seed stage, it gains some traction with its key performance indicator (KPI) in terms of revenue, views, number of users or any other factor. The organization is then ready to raise Round A funding to reach the next level. In Series ABCD funding, Series A funding is the first venture capital funding for an organization. In this round, the organization has to be ready with a plan to develop a solid business model, even if unproven. They’re expected to increase the revenue by using the money raised in Series A funding.
Series A Funding: Valuation And Investment
The investment is substantially higher than the seed round, somewhere between $2 million to $15 million, and investors look for more substance before they commit. Great ideas have to be backed by numbers; the organization may be valued at around $10 million and $15 million and must promise profits in the future. Round A funding usually comes from venture capitalists where one investor leads and the rest follow. Here are some active Series A investors:
- Intel Capital
- IDG Capital
- Index Ventures
- Google Ventures
- Partech Partners
Series A is the point where most startups fail. Even a successful seed round may not secure Series A investment for a startup. This phenomenon is known as Series A crunch.
Series B Funding
Once an organization finds its products or services perfectly fitted to the market, it raises the level to seek Series B funding. In this stage of Series ABCD funding, organizations have to deal with the big numbers and look to grow their bases exponentially. Expansion after a Series B round not only includes acquiring more customers but also growing the team for the organization to serve a larger consumer base.
Series B Funding: Valuation And Investment
Although this round ranges between $7 million and $10 million, organizations can expect a valuation in the range of $30 million to $60 million. Venture capital organizations behind Series B funding are usually the same investors from the previous round. Let’s look at some Series B investors:
- Google Ventures
- Khosla Ventures
- New Enterprise Associates
- General Catalyst Partners
- Kleiner Perkins Caufield & Byers
As there’s a new valuation of the startup in each round, investors reinvest to solidify their share in a promising venture.
Series C Funding
The Series C round in Series ABCD funding is a stage that shows an organization or a startup is doing well in the industry and is ready to acquire other businesses, develop newer products and expand into newer markets. Organizations seeking Series C funding are often ones that are looking to take their products to international markets or those that are looking to raise their valuation before an acquisition or Initial Public Offering (IPO).
Series C Funding: Valuation And Investment
Series C funding usually sees organizations raise around $25 million while their valuations lie between $100 million and $120 million, at least. Organizations aren’t valued on projected data, expectations and intuitions but on definitive data points. Funding for Series C usually comes from venture capital organizations that invest in hedge funds, banks, private equity organizations and late-stage startups.
Series D Funding
The Series D round is a little complicated compared to the previous ones. Although most organizations finish raising money in the previous round, there are some reasons an organization may choose a Series D round:
1. The Positive
If an organization discovers a new opportunity to expand before going for an IPO, it may look to boost its chances. It’s quite common for organizations to raise their values through a Series D round before going public. Alternatively, organizations that want to stay private for longer may also look for Series D funding.
2. The Negative
If an organization fails to meet the expectations it had laid out after completing the previous round, it may hit a down round. It’s when an organization raises money at a lower valuation than the previous round. A down round devalues the stock and, at the same time, gives the organization an opportunity to push through tricky times. Mostly, it has a bad effect on the organization as it loses morale, stock value and credibility.
A Series D round is typically funded by venture capitalists. Very few startups reach this round, and the valuation and the amount raised varies.
How To Get Series ABCD Funding
There are innumerable venture capitalists in the US alone. Investors like 500 Startups, Andreessen Horowitz and Bessemer Venture Partners are a few names that invest in software startups. There can be a process laid down for startups and organizations to get Series ABCD funding. Let’s take a look:
- Join An Accelerator: Almost a third of the startups raise series funding through an accelerator. 10% of all Series A rounds are accounted for by the top three accelerators. The team is the number one factor considered to be the driving force behind acceptance into leading accelerators.
- Leverage The Network: Network is critical when raising funds. Joining a top-tier accelerator may give us the best statistical opportunity for success in getting series funding but only about 2% of applications are accepted. A successful way of raising series funds without taking this route is solid networking. Timely networking with influential investors is key to series funding.
- Extend And Nurture The Network: It’s important that startups continue to leverage and nurture micro-venture capitalists and angel investors before jumping into pitches. To improve the chances of acquiring desired funds, executives must meet more often with investors, build and nurture genuine relationships before starting the series funding tour.
Equity funding may be a popular option for startups, especially tech startups, it’s certainly not the only option to raise funds. Managers must look to other alternatives such as private investors, crowdfunding and seed funding to Create New Solutions.
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