Different Stages of Funding


With the possible exception of a lemonade stand or similar undertaking, all new business endeavors require investment capital from one or more sources in order to launch. Those sources can be many and varied, and in several cases begins with the founders along with those closest to them. Funding is typically sought in rounds, each of which is associated with some business or financial milestone and includes some subset of investor types.

Investor Types

Before diving into the funding rounds, it is important to understand the different types of investors in order to better understand their roles in the funding rounds and their relationship to the business.

  • Individuals refers to the founders as well as Friends and Family, who are generally more open and certainly more approachable. These investors are also considered “non-accredited” investors. It is interesting to note this group is often referred to as “Friends, Family, and Fools”. It is obvious who friends and family are, and The Business Professor defines Fools as ”…not sophisticated investors; rather, they invest in a foolish or whimsical manner.”[1] Other characteristics of Fools are they typically invest smaller amounts, are not overly concerned about control or oversight, and are less interested in profit and loss.
  • Accredited Investors are typically individuals that have met the Securities and Exchange Commission (SEC) guidelines of having a net worth greater than $1,000,000 (excluding their primary residence) and an annual income over $200,000 ($300,000 jointly with a spouse) for the last two years.[2]
  • Angel Investors includes Accredited Investors and also includes banks, insurance companies, investment companies, employee benefit plans, charitable organizations, corporations, partnerships, and trusts with over $5 million in assets, all of which can be considered Accredited Investors as well.
  • Venture Capital (VC) are entities generally formed as Limited Partnerships (LP) or Limited Liability Companies (LLC) and composed of Accredited Investors and/or Angel Investors.
  • Private Equity (PE) are entities that share similar characteristics to VC firms but generally have different investment objectives.

Make no mistake about it, perhaps other than individuals, these investors are out for only one thing and that is money in the form of dividends and profits, and the more the better.

Funding Rounds

This section provides an overview of each funding round, and ties together the investors and amounts associated with each. Funding amount and company valuation thresholds were derived from the article “From Pre-Seed to Series C: Startup Funding Rounds Explained” by Ryan Law.[3]

  • Pre-Seed, which can be said to “precede” all other funding rounds, is the initial funding to launch the business in which the founders and Individuals participate. These funds are typically allocated to establishing the business, although may also be used for initial prototyping, market research and testing, or initial expansion. The funding amount is less than $1 million and the company valuation under $3 million.
  • Seed is the first significant round of funding in which Angel Investors participate and may include Individuals depending on their risk tolerance. VC firms have also been known to invest in this round depending on the revenue potential of the business, particularly if they believe there is a potential to become a “Unicorn”, a term coined by investor Aileen Lee[4] and used to describe companies valued at $1 billion or more, which are as rare as finding the mythical unicorn. Some of the funds may applied to the additional items in Pre-Seed, and are more likely allocated to finalizing products and services, customer base, marketing, and establishing an organizational structure to help build the business. The average funding amount is about $2 million and the company valuation between $3-$6 million.
  • Series A is generally the first eight figure funding round and lays the foundation for the business to achieve the next major milestones. At this point a company has established a track record and formula for success, and has demonstrated strong capabilities to attract customers and generate revenue. This round is where VC firms are principally involved along with Angel Investors at times. The funds are generally allocated to expanding distribution, developing more focused advertising, launching into new markets along with associated marketing adjustments, and addressing any shortfalls that may have occurred due to unforeseen expenses. The average funding amount is about $11 million and the company valuation between $10-$15 million.
  • Series B funding is generally driven by VC firms and focuses on companies enjoying significant success, demonstrating exceptional management and production, and have an established and loyal customer base. The funds are generally allocated to staff, office, and operational growth, expanding national and global reach, and the acquisition of other businesses. The average funding amount is about $25 million and the company valuation between $30-60 million.
  • Series C funding and beyond is generally tailored toward specific purposes depending upon company goals and objectives, such as continued business expansion and acquisition of greater market share. These rounds typically involve VC firms and due to minimized risk, attract PE firms, investment banks, and hedge funds. The average funding amount is about $50 million and the company valuation is between $100-120 million, although these amounts can fluctuate greatly depending on requirements.

From Series A on, Angels and VC firms have tremendous financial clout and seek controlling positions in their investments. They also leverage that power to buy out smaller investors to shrink the total number of investors also known as the capitalization table.


[1] The Business Professor, 2019, “Funding from Friends Family and Fools.” Retrieved from https://thebusinessprofessor.com/knowledge-base/funding-from-friends-family-and-fools/

[2] Wikipedia, 2019, “Accredited investor.” Retrieved at https://en.m.wikipedia.org/wiki/Accredited_investor

[3] Ryan Law, 2017, “From Pre-Seed to Series C: Startup Funding Rounds Explained.” Retrieved from https://medium.com/the-saas-growth-blog/from-pre-seed-to-series-c-startup-funding-rounds-explained-f6647156e28b

[4] Aileen Lee, 2014, “Welcome To The Unicorn Club: Learning From Billion-Dollar Startups.” Retrieved from https://techcrunch.com/2013/11/02/welcome-to-the-unicorn-club/

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