Startup Funding Explained – Series A, B & C

If you’re starting a business, or you already have a company in its early stages, you’ll need to know about funding and tech startup investment. In the first year or so of a business starting, it may receive seed funding — basically, any funding from an outside source that helps give life to an idea, product, or service. But what happens next?

Once a tech startup has an established product and workable business strategy, founders can start to think about attracting investors to help really get their venture off the ground. Series A, B, and C are the names attached to various rounds of funding. Let’s take a look.

Series A

Series A is the first round of funding beyond seed funding. Interested investors assess the profitability of the company and may offer funding in exchange for a portion of the business’s stock. This will have already occurred at seed funding but on a much smaller scale.

How do you know how much stock you should be happy to part with? This requires a Series A valuation — a process where analysts examine numerous aspects of your company, including but not limited to:

•          Proof of concept – does your solution work and can you demonstrate it?

•          Customer base – have you outlined your ideal customer profile?

•          Market size

•          Risk

•          Current and predicted revenue

Other factors such as brand reputation may also impact the likelihood of receiving Series A funding. If your revenue is low, but you’re already respected as an expert within your industry, this may stand in your favor when it comes to attracting investors. That’s why branding and marketing are crucial for early-stage startups.

Series A funding is probably the most important stage of tech startup investment, as it establishes you as a startup that has already come through significant milestones. Success at Series A means you’re a trusted entity in the market.

For instance, iTrustCapital is a fintech startup combining cryptocurrency with individual retirement accounts (IRAs). This company was funded early in 2022 to the tune of $125 million via Series A funding. Investor Left Lane Capital valued the return on its investment at $1.3 billion, demonstrating how the potential for growth is vital at Series A.

Series B

So, is Series B just more of the same? Not exactly. While this round is also about attracting investors or encouraging existing investors to add more funds, there are different factors to consider than those at Series A. This round takes you beyond tech startup investment and business development to business expansion.

You’ll now have an established year or more of financial reports, including revenue and profit, to present to investors. You can discuss business growth in more detail and talk about client satisfaction and loyalty. In short, you have much more data to work with than before.

Businesses that proceed to Series B may expect to receive higher amounts of funding, but investors will expect more, too. New investors will likely want proof that their funds will receive higher returns. Existing investors will need hard evidence that expanding the business will increase profits.

Series C

If you get to Series C, you’re already a very successful business. Companies looking for funds at the Series C stage will have specific goals, such as moving into new markets, developing new services, or gaining the capital to acquire another company.

Fintech company MFS Africa recently took its Series C funding to $200 million. The digital payment network had previous investors doubling down and received capital from eager new investors, allowing MFS Africa to continue with plans to expand across Africa. Highlighting exactly what an investment will be used for can be key in engaging investors at this level.

Final Word

If you’re a Series A funded tech company wondering what’s next, we can help. We specialize in helping early-stage startups market their solutions, grow their business, and attract Series B investors. Book a 15-minute introductory call and tell us a little about your business, and we’ll connect you to the right freelancer or marketing solution to help you achieve lasting success.

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