Series A Funding, Series B Funding and More - The Ultimate Guide

 Series A Funding, Series B Funding and More - The Ultimate Guide

Ok, so you've heard all these terms for a while now - but what do they mean in simple language anyway? What determines each round of funding? How much are these funding rounds on average? What are some trends to be aware of? The following guide was created to help so bookmark for future reference.

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Facts on the Startup Funding Round Environment in 2018

The New "Pre-Seed" Funding Round

What is a Seed Funding Round?

Who Invests in a Seed Funding Round?

What is a Series A Funding Round?

Who Invests in a Series A Funding Round? 

What is a Series B Funding Round?

Who Invests in a Series B Funding Round? 

Series C Funding Rounds and More

  

Facts on the Startup Funding Round Environment in 2018 

  • In Q1, 2018, $1.6B was deployed into 727 seed companies - the15th consecutive quarter that more than $1.5B was invested into angel/seed deals. 
  • The median deal size for seed companies is now $2.2M, more than twice what it was in 2010
  • The median post-money valuation of seed funded companies has grown to $10.7 million.
  • The median age for a company raising seed funds is now around 3 years - a new high.
  • In 2010, under 10% of seed companies at the time of their raise were generating revenue; In 2017 over 50% of seed companies at the time of their raise were generating revenue. 
  • A higher percentage of seed deals are $5M — $10M size range, nearly 1 in every 10 seed deals in the first quarter of the year fell within this range.
  • Increasing valuations and deal sizes at the angel & seed stages have led to more "pre-seed" funding rounds. 
  • The average Series A Funding Round is now around $10.5 million.
  • The median valuation of companies which raised early stage financing, including Series A and some Series B, is around $20 million.
  • The average time between financing rounds now stands at 1.5 years.

Source: Pitchbook 

The New Pre-Seed Funding Round

When businesses first start out, the money typically comes from the Founders' personal savings, friends and family, credit cards, etc. A typical path is then seed funding, Series A, Series B, etc.

With the number of seed investments now less than in 2015, but now considerably higher in average deal dollar size, a new type of pre-seed round has emerged as a type of bridge for some companies. In this case, a founding team (often pre-product) receive a small investment to hit one or more of the milestones they’ll need to ready themselves for “true” seed investment: from hiring a critical team member to developing a prototype product.

Led by many of the same investors that lead seed rounds, pre-seed financing is often used to bridge the gap to the next round.

Average Funding Amount: <$1 million

Typical Company Valuation: $1–3 million

Common Investors: Friends and family, early-stage angels, startup accelerators

Source: Medium

What is a Seed Funding Round?

Seed funding is the first outside investment in a company in exchange for equity. The amount varies widely from just tens of thousands of dollars to up to around $2 million. The equity given up in exchange for the seed funding is generally in the range of 10% - 25%.

Who Invests in a Seed Funding Round?

Some major sources of seed funding include:

  1. Angel Investors
  2. Accelerators like YCombinator and TechStars
  3. Micro-VC's
  4. Seed Funds from large corporations such as IntelGoogle and FedEx, offer seed funding to promising startups working on innovative technologies which might be good acquisition candidates later.

According to Wikipedia, Seed funding or seed capital can be distinguished from venture capital in that venture capital investments tend to come from institutional investors, involve significantly more money, are arm's length transactions, and involve much greater complexity in the contracts and corporate structure accompanying the investment.

Average Funding Amount:  Varies Greatly. $10,000 - $10 million U.S.D. ($150k average from Angels; $1.5mm average from new wave of seed venture funds)

Typical Company Valuation: $3–10 million

Common Investors: Angels, early-stage VCs, startup accelerators

What is a Series A Funding Round?

A Series A Funding Round is the name typically given to a company's first significant round of venture capital financing. The average deal size of a series A funding round has grown considerably over the years, now at about $10.5 million. The name Series A refers to the class of preferred stock sold to investors in exchange for their investment. It is usually the first series of stock after the common stock and common stock options issued to company founders, employees, friends and family and angel investors.

If a company raises a series A round it means their business plan and initial results have probably went through some serious scrutiny and the company has shown a real potential to be able to tap into a big market.

The capital raised during a series A is usually intended to capitalize the company for 6 months to 2 years as it develops its products, performs initial marketing and branding, hires its initial employees, and otherwise undertakes early stage business operations.

Average Funding Amount in 2018: $10.5 million

Typical Company Valuation: $15 - $30 million

Common Investors: VCs, “super” angels 

Who invests in Series A Funding Round?

According to Pitchbook, some of the biggest Series A investors in software startups include Accel, 500 Startups, Sequoia, Bessemer Venture Partners, Google Ventures, Andreessen Horowitz and Greycroft Partners.

What is a Series B Funding Round?

While a Series A funding round is to really get the team and product developed, a Series B Funding Round is all about taking the business to the next level, past the development stage.  Typically before these fundings rounds occur, the company has completed significant milestones and now its time to really build upon that success with additional investment. Series B is to pour the gas on for growth with a larger investment round. At this stage, the company has shown the ability to reach and surpass well planned goals, so now its time to double down and get a better sense of where things can really go.

Like all other funding rounds, there are no absolutes when it comes to funding range, but typical Series B fundings are in the $10mm - $30mm range.

Average Funding Amount in 2018: $24.9 million

Typical Company Valuation: $30 - 60 million

Common Investors: VCs, Late-Stage VCs

Who Invests in a Series B Funding Round?

Some of the top Venture capital firms participating in Series B Funding rounds over the last several years have included Google Ventures, New Enterprise Associates,  Kleiner Perkins Caufield & Byers, Khosla Ventures and General Catalyst Partners.


Series C Funding Rounds and More

A Series C Funding Round generally occurs to to make the business appealing for acquisition or to support a public offering.

This is the first of what are called "later-stage" investments. This can continue into D, E, and F funding rounds.

While there is a lot of capital ready, a lot of companies don't make it to Series C. The reason for this is because Series C investors are looking for breakout companies that have already demonstrated significant traction. Thus, the deal size of Series C funding rounds has continued to increase.

Average Funding Amount: $50 million

Typical Company Valuation: $100–120 million

Common Investors: Late-stage VCs, private equity firms, hedge funds, banks

 

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