Comparing Series A, B, C and D funding: Which is your business ready for?

As a small business owner or entrepreneur, you may be considering raising capital to help your business grow and thrive. One way to do this is by hosting venture capital fundraising rounds. 

These rounds provide outside investors with the opportunity to contribute to your company and in return, enjoy an ownership stake in the business, while you receive the capital you need to help your business expand.

Curious what each round of funding means, and how you can use Series A, B, C and D funding to raise capital for your small business? In this article, we’ll describe each of the four fundraising rounds and how they can contribute to the next stage of your business’s growth.

Series A funding is the first robust round of venture capital financing for startups

Before Series A funding, startups may go through a few seed rounds, though Series A funding generally brings in significantly more capital. Seed rounds, though helpful, are not required. 

That’s why Series A is often considered the first official round of fundraising. This fundraising round is typically used to finance the development of a product or service and to build the team needed to support the business’s growing momentum. 

Series A investors are venture capital firms, accelerators or angel investors who are looking for high-growth potential companies to invest in. Series A fundraising has increased greatly over the past decade. 

In 2010, the average Series A round raised $4.9 million. In 2017, that average jumped to $12.1 million! To raise capital through a Series A round, you will need to have a solid business plan, some level of early-stage success and a clear vision for the future of your company. 

You’ll also need to be able to demonstrate that your product or service has a market, and that there’s demand for it. These are just some of the best practices when pitching to investors. 

Series B funding is the second round of VC financing, for startups with proven potential

The second round of VC fundraising, Series B, is often used to finance the expansion of the business and to help it reach the next level of growth. At this stage, businesses may launch new products or enter new markets. 

By receiving additional funds from venture capitalists and other investors during this stage of growth, businesses are able to increase their sales and profits while minimizing associated risks. It’s also an ideal time to bring on strategic partners who can help the company reach its goals more quickly and effectively.

Most Series B investors are venture capital firms, angel investors or strategic investors who are looking to invest in companies with proven track records of success — a few years of successful expansion with a strong leadership team and clear vision. That’s what makes this round particularly hard to reach. 

Investors have higher standards than ever, and every business that hopes to raise capital must prove its worth. To prepare for a Series B round, your business should have detailed reports describing your company’s success and growth, plus a straightforward plan for how this capital will be used to improve profitability. 

Series C funding brings in a new kind of investor— late-stage VC firms

Now that your business has shown it can manage capital effectively, expand into new markets, reach a strong customer base and maintain steady leadership, it’s time for the Series C round. This round is often leveraged to help the business scale and expand operations.

This high-ticket round, where ventures raised an average of $52 million in 2021, is typically led by late-stage venture capital firms. The main difference in this series is that businesses may be more focused on finding large institutional investors rather than angel or other early-stage venture capitalists. 

And unlike earlier rounds, where there might be more flexibility when negotiating terms with investors, in later rounds, companies can expect more complex negotiations as the venture matures and more stakeholders become involved in the decision-making process.

Series D is the least-common funding round

Many new business owners and entrepreneurs believe Series D is the final fundraising round, but in reality, startups can continue raising VC in Series E and beyond. But these later funding rounds are less common because by this point in their growth journey, businesses can choose to go public or pursue loans and other funding.

In Series D, companies may be raising capital to expand again before going for an IPO, or they may need additional funding because Series C did not raise enough capital to meet the business’s goals. 

At this stage, companies often bring in $100 million or more in funding — and may reach “unicorn” status in the process ($1 billion valuation for a private company).

Series A, B, C, and D aren’t the only way to raise capital, but they can be the most effective

Everybody loves a bootstrapping success story where the founder starts and expands a business with just their personal funds and revenue from the firm. 

But more commonly, securing external funding is an essential part of the growth and expansion of a small business. And these startup funding rounds allow founders to secure the capital they need to build and expand their operations so they can bring their big ideas to life. 

While the process of raising VC through funding rounds can be complicated and time-consuming, it can supply your business with the cash you need to reach the next stage — and beyond.

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