Series A<\/h3>\n\n\n\n
Once a startup makes it through the seed stage and they have some kind of traction \u2014 whether it\u2019s number of users, revenue, views, or any other key performance indicator (KPI) \u2014 they\u2019re ready to raise a Series A round.<\/p>\n\n\n\n
The typical valuation for a company raising a seed round is $10 million to $15 million.<\/p>\n\n\n\n
Series A funding usually comes from venture capital firms, although angel investors may also be involved. Additionally, more companies are using equity crowdfunding for their Series A.<\/p>\n\n\n\n
Series A is a point at which many startups tend to fail. In a phenomenon known as \u201cSeries A crunch,\u201d even startups that are successful with their seed round often have trouble securing a Series A round.<\/p>\n\n\n\n
Series B<\/h3>\n\n\n\n
A startup that reaches the point where they\u2019re ready to raise a Series B round has already found their product\/market fit and needs help expanding.<\/p>\n\n\n\n
The big question here is: Can you make your company work at scale? Can you go from 100 users to a 1,000? How about 1 million?<\/p>\n\n\n\n
A Series B round is usually between $7 million and $10 million. Companies can expect a valuation between $30 million and $60 million.<\/p>\n\n\n\n
Series B funding usually comes from venture capital firms, often the same investors who led the previous round. Because each round comes with a new valuation for the startup, previous investors often choose to reinvest in order to ensure that their piece of the pie is still significant.<\/p>\n\n\n\n
Companies at this stage may also attract the interest of venture capital firms that invest in late-stage startups.<\/p>\n\n\n\n
Series C<\/h3>\n\n\n\n
Companies that make it to the Series C stage of funding are doing very well and are ready to expand to new markets, acquire other businesses, or develop new products.<\/p>\n\n\n\n
Series C is often the last round that a company raises, although some do go on to raise Series D and even Series E round \u2014 or beyond. However, it\u2019s more common that a Series C round is the final push to prepare a company for its IPO or an acquisition.<\/p>\n\n\n\n
For its Series C, startups typically raise an average of $26 million. Valuation of Series C companies often falls between $100 million and $120 million, although it\u2019s possible for companies to be worth much more, especially with the recent explosion of \u201cunicorn\u201d startups.<\/p>\n\n\n\n
Valuation at this stage is based on hard data points, like:<\/p>\n\n\n\n
- \n
- How many customers does the company have?<\/li>\n\n\n\n
- How much revenue has the company generated?<\/li>\n\n\n\n
- What is the company’s current and projected growth rate?<\/li>\n<\/ul>\n\n\n\n
Series C funding typically comes from venture capital firms that invest in late-stage startups, private equity firms, banks, and even hedge funds.<\/p>\n\n\n\n
Series D<\/h3>\n\n\n\n
Series D is a little more complicated than the previous funding rounds. As mentioned, many companies finish raising capital during a Series C. However, there are a few reasons a company may choose to continue on to Series D.<\/p>\n\n\n\n
1. Expansion Opportunities:<\/strong> Before opting to go IPO, a company might discover a new opportunity for expansion and just need another boost to get there. Many companies raise Series D rounds (or beyond) to increase their value before going public. Alternatively, some companies want to stay private for longer than was once common.<\/p>\n\n\n\n
2. Down Round:<\/strong> When a company hasn\u2019t hit the expectations laid out after raising their Series C it’s called a \u201cdown round.” It also refers to when a company raises money at a lower valuation than they raised in their previous round.<\/p>\n\n\n\n
Series D rounds are typically funded by venture capital firms. The amount raised and valuations vary widely, especially because so few startups reach this stage.<\/p>\n\n\n\n
Series E<\/h3>\n\n\n\n
If few companies make it to Series D, even fewer make it to a Series E. Companies that reach this point often raise for many of the reasons listed in the Series D round:<\/p>\n\n\n\n
- \n
- They\u2019ve failed to meet expectations<\/li>\n\n\n\n
- They want to stay private longer<\/li>\n\n\n\n
- They need a little more help before going public<\/li>\n<\/ul>\n\n\n\n
2. Crowdfunding<\/h2>\n\n\n\n
Crowdfunding is a method of raising capital through the collective effort of friends, family, customers, and individual investors.<\/p>\n\n\n\n
This approach taps into the collective efforts of a large pool of individuals \u2014 primarily online via social media and crowdfunding platforms \u2014 and leverages their networks for greater reach and exposure.<\/p>\n\n\n\n
Crowdfunding is essentially the opposite of the mainstream approach to business finance. Traditionally, if a person wants to raise capital to start a business or launch a new product, they would need to pack up their business plan<\/a>, market research, and prototypes, and then shop their idea around to a limited pool or wealthy individuals or institutions.<\/p>\n\n\n\n
These funding sources include:<\/p>\n\n\n\n
- \n
- Banks<\/li>\n\n\n\n
- Angel investors<\/li>\n\n\n\n
- Venture capital firms<\/li>\n<\/ul>\n\n\n\n
This fundraising approach is like a funnel, with the entrepreneur and their pitch at the wide end and the audience of investors at the closed end. Fail to point that funnel at the right investor or firm at the right time, and that\u2019s time and money lost.<\/p>\n\n\n\n
Crowdfunding platforms, on the other hand, turns that funnel on-end. By giving the entrepreneur a single platform to build, showcase, and share pitch resources, this approach dramatically streamlines the traditional model.<\/p>\n\n\n\n
Traditionally, entrepreneurs spend months sifting through their personal networks, vetting potential investors, and spending their own time and money to get in front of them.<\/p>\n\n\n\n
With crowdfunding, it\u2019s much easier for entrepreneurs to get their opportunity in front of more interested parties and give them more ways to help grow the business, from investing thousands in exchange for convertible debt<\/a> or equity to contributing $20 in exchange for a first-run product or other rewards.<\/p>\n\n\n\n
So, what are the options if you can’t raise any more funding<\/a>?<\/p>\n\n\n\n
3. Loans<\/h2>\n\n\n\n
A small business startup loan is any type of loan that helps businesses with little to no business history. It\u2019s one of many financing options for founders who are looking to either get started or improve their young companies.<\/p>\n\n\n\n
Small business startup loan is an umbrella term under which a few different types of financing fall.<\/p>\n\n\n\n
Here\u2019s a general breakdown of the main types of small business startup loans you might run across as you\u2019re figuring out the best option for financing your startup.<\/p>\n\n\n\n
1. SBA loans<\/h3>\n\n\n\n
An SBA small business loan is a loan that is backed by the Small Business Administration (SBA).<\/p>\n\n\n\n
Founded in 1953, the SBA is a federal government program that provides support to small business owners in the form of mentorship, workshops, counseling, and small business loans<\/a>.<\/p>\n\n\n\n
While the loans are backed by the SBA, they don\u2019t come directly from the SBA. You\u2019ll have to find a local lender who provides SBA loans in order to access the funding.<\/p>\n\n\n\n
2. Credit cards<\/h3>\n\n\n\n
While not a traditional \u201cloan,\u201d business credit cards are a great option for very early-stage startups who need help getting going.<\/p>\n\n\n\n
Choose one with a 0% introductory APR, because that means that as long as you\u2019re able to pay off the balance each month (or at least by the end of the first year, which is when most credit cards’ interest rates kick in), you\u2019re basically getting a free loan.<\/p>\n\n\n\n
However, beware of high-interest rates \u2014 and don\u2019t overestimate how quickly you\u2019ll be able to pay back a credit card. Once that introductory period is over, any balance you\u2019re carrying will likely come with a hefty interest rate.<\/p>\n\n\n\n
3. Short term loans<\/h3>\n\n\n\n
Short-term loans are relatively small amounts of money that have to be paid back within three to 18 months.<\/p>\n\n\n\n
They\u2019re often used as a stop-gap when a company is having cash flow problems, for emergencies, or to help companies take advantage of a business opportunity.<\/p>\n\n\n\n
4. Friends and family<\/h3>\n\n\n\n
Getting money \u2014 in the form of loans or investments \u2014 from family and friends is another one that doesn\u2019t fall under traditional \u201csmall business startup loans.\u201d But it\u2019s a common way for startup founders to get money from pre-seed funding to either start their companies or get help along the way.<\/p>\n\n\n\n
Friends and family are a great source of early investment or loans \u2014 but it can be a tricky relationship to navigate.<\/p>\n\n\n\n
It\u2019s common for people to feel like they can be casual and personal with these types of investments because their relationships with the investors are personal.<\/p>\n\n\n\n
That\u2019s a mistake.<\/p>\n\n\n\n
You should treat an investment or loan from friends and family as a professional addition to your existing personal relationship. It\u2019s a good idea to get a written contract stipulating the terms of the investment or loan and also to make it clear that it\u2019s very, very likely they won\u2019t get their money back if it\u2019s an investment.<\/p>\n\n\n\n
4. Venture Capital<\/h2>\n\n\n\n
Venture capital is funding that\u2019s invested in startups and small businesses that are usually high risk, but also have the potential for exponential growth.<\/p>\n\n\n\n
The goal of a venture capital investment is a very high return for the venture capital firm, usually in the form of an acquisition of the startup or an IPO.<\/p>\n\n\n\n
Venture capital is a great option for startups that are looking to scale big \u2014 and quickly. Because the investments are fairly large, your startup has to be prepared to take that money and grow.<\/p>\n\n\n\n
A venture capital firm is usually run by a handful of partners who have raised a large sum of money from a group of limited partners (LPs) to invest on their behalf.<\/p>\n\n\n\n
The LPs are typically large institutions, like a State Teachers Retirement System or a university who are using the services of the VC to help generate big returns on their money.<\/p>\n\n\n\n
The partners have a window of 7 to 10 years with which to make investments, and more importantly, generate a big return. Creating a big return in such a short span of time means that VCs must invest in deals that have a giant outcome.<\/p>\n\n\n\n
These big outcomes not only provide great returns to the fund, they also help cover the losses of the high number of failures that high risk investing attracts.<\/p>\n\n\n\n
5. Angel Investors<\/h2>\n\n\n\n
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