Understanding Series A, B, C, D, and E Funding
If there’s one thing the technology & finance world likes, it’s confusing monikers and acronyms.
It’s no surprise then that such a common topic as fundraising is wrapped in labels like Series A, B, C, D, etc. It gets even more confusing when you add “seed” and “pre-seed (which is now apparently the new “seed”, while “seed is now the new “Series A”)…. by the time you get around to learning what “bridge rounds” and “down rounds” are you’ve given up on your AR for cats idea and finally started your own chicken farm.
Most of these concepts aren’t necessary to know until you’re raising for them. It is important, however, to get a holistic overview of the different usual fundraising rounds, and how they differ. While it may initially seem hard to understand the type of funding at hand, startup owners should prep themselves with basic knowledge in order to build a clear strategy for future funding.
Series A is the most important fundraising round in technology.
In a sense, the Series A separates the men from the boys, then women from the girls, and the cows from the… well, you get the picture. A company that’s raised a Series A has de-risked significantly from just being an idea – at the very least, you’re looking at a company with a 7-figure present-value valuation.
Series A funds have changed a lot over the years. While at one time it was possible to raise a Series A on a promising idea or technology, the bar (and usual deal amounts) has risen substantially in recent years.
A modern Series A company has demonstrated traction & some level of product-market fit – some major KPI has shown tremendous growth upwards, and there are clear signs of penetration of a substantial market.
Series A rounds are typically in the $1-5M range, valuing the company anywhere from $10-$20M – at this stage, investors are ushering in a “growth” stage. Shareholders are confident in the market, the technology & entrepreneurs, and are throwing fuel on the fire to grow the company and hit scale. This is the beginning of the growth stage, planting the seeds of heftier investments by starting with smaller funding pools.
Series B is when you’ve entered rarified air. Series A funding is a very risky place for startups and investors involved, and most companies at that stage generally post a return disappointing to their valuation.
But by the time a company is raising a Series B, it’s proven its viability as a profitable business. Often called “growth stage investing”, the Series B is where angels, family & crowdfunders leave the pool, and it becomes exclusively a VC play. This is when outside investors start to become interested in your startup. MATA is a great tool that makes it easier for investors to see you and learn more about your startup.
At this stage, a company has a proven mote, is generating healthy revenue, and is ready to shoot for that 9-10 figure valuation by dramatically scaling & staffing up. Valuations run anywhere from $30 up to as high as $80 million, with round sizes typically sitting between $7 and $15 million.
A Series C company is right at the cusp of the most fabled designation in the world of startups: unicorn status.
While revenue numbers are likely still in the low millions, a Series C company has dominated their immediate market and are now looking to rapidly expand investment. This is almost always the last round a company does because the next outcome is usually an IPO or an acquisition. Companies typically use Series C funding to enter a brand new market (Uber famously burned cash expanding outside of North America for the first time) or acquire other companies.
Series C companies can be valued anywhere from $100m to $500m (although it’s typically on the lower end) – the promise of this round is to generate enough capital to 10x into the 3 comma club. Round sizes start to vary a lot more, but the average Series C round is in the $25-$30m range.
At the Series C stage, only the most seasoned VC firms, private equity, banks & hedge funds are in the game.
Wish to get to Series C company? Saffron can make the process easier.
Remember one of the “bad” words described at the beginning of this article? The “down round.”
There’s no phrase that ripples fear in the hearts of entrepreneurs quite like that one. Simply put, a down round is when things go poorly and a company has to raise money at a lower valuation than it used to have. This usually happens when a company raises funds at a certain valuation, struggles to meet its objectives or starts faltering, and has to raise more cash to survive, this time being far less appealing to the market.
Down rounds are brutal periods for companies – investors are losing money at this point, so the CEO and her employees are facing intense scrutiny and pressure to turn the ship around.
Series D rounds are typically down rounds of funding sources. This isn’t always the case – it’s certainly possible for a company well-past the Series C to seek a higher round of financing. This is especially the case with highly technical/research-intensive products that want to continue developing a certain technology.
In most cases, however, a company that raises a Series D didn’t get a good outcome out of a Series C. At Series C stage the company has been so thoroughly de-risked, it’s quite rare for a company to flounder completely – at worst the company might not hit the billion-dollar valuation, but still slightly outpace its valuation and remain a very profitable enterprise.
Series D is the “Voldemort” of the startup world – nobody likes talking about it.
Series E is such a rare funding phase for businesses that it’s hard to even place it on this list. The truth of it is, an E round isn’t like most rounds – the cheque sizes are so substantial, the motives behind this round are all over the place. Everyone from plateauing companies looking for a cash inflection, to shrewd founders wanting to keep things private, to dated companies looking to revitalize, are all reasons why a Series E can and has happened.
There you have it – a general overview of the different types of funding. In general, Series A-C is the most relevant for most startup founders – each represents a profoundly different milestone in the growth of a company. Understanding the difference all the way from Series A to Series E helps you understand where you are.
Regardless of which stage one is in, closing any of these rounds is quite difficult and definitely an achievement worth celebrating (before going back to work the next day at 7 am to start hitting those milestones).
If the types of funding are still confusing, check out Mata for creators. To transform your small ideas into big ideas worth funding, you can track financial flow from week to week. You can also add milestones so you know exactly when you’ve gone from Series A to Series B, and hopefully, to Series C and beyond. Finally, view easy-to-use graphics with funding and expenses.