Every day, entrepreneurs lay out plans for their startups—a type of high-growth business designed to reach immense scale. But most startups require a large amount of capital to get going, and they typically obtain this not by taking on debt but by selling equity in a series of funding rounds. Investors provide money in these funding rounds in exchange for an ownership stake. If the company succeeds, these investors share in future profits. While the majority of startups fail, the potential reward for investing in a success is compelling enough for venture capital firms to back startups at various stages of development, from idea to IPO.
Here’s a primer on the rounds of funding startups typically seek from investors.
What is a startup?
A startup is a growth-focused business in an early stage of its life cycle. Unlike a traditional small business, a startup typically sets its sights on scaling up to dominate large markets. To do this, they need sizable outside investment. Such investment can come from venture capital firms, private equity firms, and angel investors, all of whom are poised to make strategic investments in exchange for equity ownership.
Startup founders typically position their new business venture for one of two outcomes. The first is an initial public offering (IPO) by selling company shares on a public stock exchange. The second startup business model is building a company that becomes a target for acquisition.
8 startup funding stages
- Pre-seed funding
- Seed funding
- Series A funding
- Series B funding
- Series C funding
- Series D funding
- Series E funding
- Initial public offering (IPO)
The startup fundraising process consists of different stages, also known as funding rounds. Each round or stage of startup funding corresponds with a different period in a startup’s evolution. If you’re looking to build a startup, you can expect to pass through some, if not all, of the following funding stages.
1. Pre-seed funding
This is the earliest stage of fundraising, and it’s one that some entrepreneurs skip. Pre-seed capital is often used to build prototypes or conduct market research to validate a business concept. Although angel investors may offer funding at the pre-seed stage, founders likely won’t have access to formal investment from venture firms yet. Instead, they may call on friends and family and dip into personal savings. Smaller sums are invested in the pre-seed funding stage, ranging from a few thousand dollars to around a quarter million.
2. Seed funding
The seed stage is when venture firms begin to get involved. Angel investors often continue to invest at this stage as well. A startup may use funding from the seed round to start proving product-market fit. That involves developing its products, its positioning, and its team. A recent Carta study reported that in the first half of 2024, a median of $3 million was raised in seed rounds.
3. Series A funding
To some investors, Series A represents the first official equity funding stage. It’s the point where you’ve demonstrated a successful business strategy with market research to back it. Traditionally, startups use Series A funding to continue proving product-market fit, expanding the team, and investing in customer acquisition. Carta reported that the median Series A round size in Q4 of 2023 was $11.3 million.
4. Series B funding
By the time you reach a Series B funding round, you may have access to private equity firms in addition to venture capital. Whereas venture firms prioritize brand-new startups with high potential for future growth, private equity investors generally look for more mature startups with a proven track record of generating revenue and an established, viable business model.
Typically, entrepreneurs use Series B funding to scale their business and broaden their market reach. They should have demonstrated that there’s a market for their product and that they are ready to grow their operation. Carta reported that the median Series B round size in Q1 2024 was $21 million.
5. Series C funding
Series C potential investors are typically drawn from the same pool as Series B investors. This includes existing investors who are pleased with their early stage investments and believe you have a proven business model. This round of funding focuses on accelerating growth, acquiring smaller competitors, and even preparing for an IPO.
Carta reported that the median Series C round size in Q1 2024 was $20.4 million. That round size is significantly less than it was several years before; in Q2 2021, the median Series C raise peaked at $60 million.
6. Series D funding
Series D fundraising almost always focuses on two things: positioning for a sale or raising capital for an IPO. After using various startup funding stages to build the team, scale production, and expand to new markets, founders seeking Series D funding generally focus on showing the public that the business will be viable for decades to come.
Series D round sizes have fluctuated in recent years. Carta reported an average round size of $73 million in Q2 of 2024 and $58 million in Q3 of the same year. Many startups do not reach Series D, but that doesn’t always mean that they failed. Rather, companies could have captured the necessary financial support in earlier funding stages or by generating enough cash to self-fund.
7. Series E funding
Occasionally, startups decide that they need additional funding to reach their goals for their IPO. In such cases, they may initiate Series E funding. It’s possible that this round will match the totals raised in a Series C or Series D round. More likely, it will supplement the money raised during prior rounds.
8. Initial public offering (IPO)
At the IPO stage, the company transitions from being privately owned to being publicly owned. The company and its early investors sell shares to outside investors, typically by working with an investment bank as underwriter. To start the process and set an initial market price, the bank secures commitments from large financial institutions, pension and endowment funds, and major asset managers to buy shares before they begin trading on the stock market. From there, the public offering proceeds, and shares are made available to the public.
How the company runs can change meaningfully after an IPO. Stockholders can vote for the members of a company’s board, and it’s those board members who hire and fire the company’s management team. This means that the startup’s founder and CEO won’t necessarily remain CEO in perpetuity. Unless they’ve enacted an agreement stipulating that the founding CEO remains in place, from this point forward, they serve at the pleasure of their shareholders.
Alternatives to series funding
Not every startup will appeal to institutional investors, and not every founder wants to give up major equity to venture capitalists. If series funding doesn’t make sense for your startup, here are five alternative business financing options to explore:
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Bootstrapping. The bootstrapping approach starts by funding your company from your own savings, bank loans, and credit card purchases. You then try to finance the business from its day-to-day cash generation. You don’t sell to equity investors, which means you don’t give up an ownership stake.
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Business line of credit. This is a type of bank loan where you borrow funds only when needed, rather than receiving a lump-sum investment. Banks charge interest, but they don’t ask for equity in your company.
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Crowdfunding. You can use platforms like Kickstarter or Indiegogo to raise small contributions from a large number of supporters in exchange for rewards or early access to your product.
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Investment from friends and family. You can appeal directly to friends and family members to invest in your business. If you go this route, consider drafting and signing formal agreements that lay out the terms of their investment.
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Grants and competitions. Not all funding requires giving up equity. For example, government grants and incubator programs can provide capital without ownership dilution. Seek out funding mechanisms like SBIR (Small Business Innovation Research) grants, also known as “America’s Seed Fund,” to finance your research and development (R&D) without surrendering equity.
Startup funding stages FAQ
What are the stages of startup funding?
The stages of startup funding include pre-seed funding, seed funding, Series A funding, Series B funding, Series C funding, Series D funding, Series E funding, and an initial public offering (IPO).
Is Series B considered early stage?
Series B funding is considered middle-stage funding, not early stage. But a startup raising a Series B would still be considered an early-stage company.
What is the timeline of startup funding?
Startups fund their business operations on an as-needed basis. The exact timing of each funding round depends on a business’s financial needs and aspirations. For instance, a startup may need investment capital at the outset to help it build prototypes and hire staff. It may not need another round of funding until it’s ready to open retail stores or expand to new markets.
