Startup Investment Stages & Funding Rounds

For any startup, securing funding is an essential part of the early stage process. But there are actually several startup investment stages and funding rounds that a new business may go through and each investment stage comes with its own unique opportunities and challenges.

This guide is designed to provide you with a better understanding of the investment stages for startups, so you can make more informed decisions that will hopefully pay big dividends in business venture growth.

Startup Investment Stages - Pre-Seed Funding Round

In general, every startup’s funding journey starts with the pre-seed funding stage. During this stage, an entrepreneur will usually rely on his/her own resources to help develop and grow the startup business but he/she may seek guidance and advice from outside sources, like experienced founders. Typically, startups try to have a valuation range between $10,000 and $100,000 for the pre-seed funding round.

The pre-seed funding stage is designed to achieve certain early goals, such as providing the startup with the necessary capital for assembling a team and creating a minimum viable product (MVP). The MVP can then be used to attract additional investors for the next round of investment stages.

Startup Funding Rounds - Seed Funding Rounds

After the startup successfully reaches its pre-seed funding goals, it will then proceed through several stages of seed funding as the need for additional capital arises. These stages are often labeled as Series Seed, Series A, Series B, etc.

Each stage of the seed funding process is designed to support the startup's growth by providing it with the funds and resources it needs to accomplish certain business goals for that level. For instance, the first round of seed funding can help the startup develop and/or refine its products and create its marketing strategies. Additional seed funding rounds may also be required if the startup experiences rapid growth and wants to expand its products or services, or if it has not met the funding goals of its previous stages.

In most cases, the seed funding stage usually starts once a startup has an estimated business value $3 million and $6 million. As a result, valuation is an essential factor when it comes to considering such investment rounds. After all, before seed funding can begin, it is important to determine if the venture is ready to move forward or investors may feel their investment would be too risky.

Investment Stages for Startups - Series Financing

Series stage financing is a type of venture capital (VC) funding that startups use to launch their operations up and running. The first of these stages is Series A financing, which a startup uses to help develop their products, maintain consistent revenue flow, and create the plans necessary for generating long-term profits. For the average startup, Series A financing aims to raise between $1 million and $15 million and the startup has a valuation range between $10 million and $30 million.

Once a startup has become established with a sizable user base and consistent revenues, then it can seek Series B financing to help acquire the capital that will help it expand its market reach, streamline its operations, and increase its customer base. Series B financing typically aims to raise between $7 million and $12 million. The startup should have a valuation range of $25 million to $65 million during this startup funding round.

Should a startup require additional financing stages, a third round of seed funding, called Series C financing, can be initiated. Series C financing, and any future rounds, will usually be used if certain objectives weren’t accomplished in the earlier funding stages. It can also be used to provide the startup with a final push before it launches an Initial Public Offering (IPO) or to simply provide it with the resources it needs to continue to grow and expand.

Summary

In conclusion, successfully navigating the startup investment stages can be a complex and challenging endeavor for the first-time entrepreneur. But when you understand the different funding stages, you can put your startup in a better position for securing the capital necessary for fueling your venture's growth at whatever stage your business is in.

The Pearl Fund is the industry leader in Opportunity Zone business investing. We were the first OZ VC investment fund in the nation, so we have the experience you’re looking for if you want to take advantage of the many benefits that come from investing in Qualified Opportunity Zones Businesses where the capital is sourced from a Qualified Opportunity Fund. Contact us today and let us help you achieve your capitalization goals.