If you’re thinking about launching a business, scaling your company, or entering new markets, chances are, you’ll have to turn to outside funding at some point. And when you do, you must know your financing options like the back of your hand—starting with all startup funding stages.
Navigating the venture capital stages of funding—understanding which stage to target and what’s expected of you—is vital to fundraising success. This is especially true for early-stage startup funding, which accounted for 80.7% of all disclosed VC deals in 2023.
All funding stages for startups have unique characteristics and requirements, ranging from funding amounts and potential investors to their expectations and terms.
Having assisted startups in raising over $3 billion across different stages of startup funding, we’re here to guide you through the intricacies of startup funding. We’ll help you comprehend how each stage operates, its objectives, and the essential milestones needed to secure funding, from pre-seed to an IPO.
Pre-seed is the very first priced equity round a startup raises at its nascent stage. Most startups at this stage only have an idea, a team, and an understanding of their target market. This stage has only formed over the past decade due to the growing need for substantial initial money infusion for entrepreneurs to get things off the ground.
What is pre-seed funding used for? Mainly for:
- Hiring crucial team members in areas like product development and marketing
- Validating the idea through proof of concept
- Developing a minimum viable product (MVP) or a prototype
- Covering basic operational expenses, including office space, software tools, and administration
For pre-seed fundraising via equity (not debt instruments), you must value your company beforehand. Average valuations range from $1M to $10M pre-money.
Runway: Ideally, pre-seed funds should last 12-18 months.
Average pre-seed funding amount: These investments start at $30,000, occasionally reaching up to $5M (one of our clients raised $3M pre-seed) for up-and-coming startups. Your position in this range depends on factors like your industry, location, business potential, founding team’s expertise, and pitch effectiveness.
Typical pre-seed investors:
- Angel investors: Wealthy individuals who often provide initial financial support, with investments ranging from $30,000 to over $500,000.
- Accelerators and incubators: These programs not only offer mentorship but sometimes follow-on pre-seed financing for top graduates.
- VC funds: Ranging from micro VC funds specializing in early-stage startups to established funds participating in early investing trends.
- Qualified equity round (requires company valuation)
- SAFEs, in all their variety
- Convertible notes
How to raise pre-seed funding
At this cradle stage, the startup’s main goal is to
- Strong team/founder-market fit, with your founders’ and experts’ past track record of success playing the key role
- A bold, compelling vision for the long-term future
- A compellingly explained problem you’re solving, supported by stats
- Super promising market size opportunity with a clearly defined target customer (TAM SAM SOM)
- A well-thought-out concept and value proposition
- A compelling answer to the “Why now?” question that highlights the momentum
- Profitably-looking business model
- High-level financial projections
- Cohesive, structured GTM strategy with key milestones
- Market valuation that reflects your company’s value (for qualified equity round)
If pre-seed capital is about kickstarting your business, venture capital seed funding represents the first significant step towards early growth for a startup. At this early-stage startup funding, most startups are yet to generate revenue.
Seed capital aims to elevate startups from the idea or prototype stage to becoming fully operational entities and:
- Develop and refine the product
- Arrive at product-market fit
- Validate and refine the business model
- Scale marketing and sales to start generating revenue
- Expand the team
Equity: Seed investors typically get between 15%-35% of equity.
Valuations: Typical seed round valuations in 2024 land between $1M to $15M.
Runway: Seed capital should last 12-24 months on average, depending on your burn rate.
Average seed funding amount: Over the past decade, seed checks have increased significantly. This growth has led to venture capital firms primarily conducting these rounds, with angel investors sometimes participating in smaller deals. As of January 2024, the average seed funding amount is $3.5 million. Here’s a look at how the average seed deal size has evolved over the years:
Typical seed investors:
- Venture capital firms
- Sometimes, previous investors who participated in the pre-seed round
Related read: How to value an early-stage startup
How to raise seed funding
Here is what investors expect at a seed stage:
- Strong team-market fit
- A massive TAM opportunity and a clear target persona with use cases
- Strong problem/user pain point, supported with statistics
- Quantified value proposition: increase in lead qualification time by 3x, 100% higher conversion rate, etc.
- Strong market validation signals and proof of demand, e.g., quotes from user/potential customer interviews
- Strong GTM motion plan
- Promising revenue forecast supported by financial projections
Series A funding
So, what is a Series A investment? Reaching Series A is a major milestone for startups, as it signifies beating the odds that lead to failure for 60% of early-stage companies.
Series A funding is a leap towards scaling and enhancing the startup’s revenue generation capabilities. The investments at this stage are substantial, reflecting the increased expectations and requirements.
The primary goal of Series A funding is to steer a startup toward profitability or, at the very least, to achieve specific revenue targets. These targets can differ greatly, depending on the startup’s industry and business model.
To achieve this, the majority of the raised Series A cash goes into:
- Enhancing the core product/service
- Fueling sales and marketing funnels
- Establishing partnerships
- Optimizing operations to achieve capital efficiency
As of 2024, raising a Series A round takes about 6 to 12 months. Many investors emphasize the importance of starting the preparation for this phase well before you run out of cash. Leslie Feinzaig, founder of Graham & Walker, states founders should start focusing on their critical metrics 12 to 18 months before seeking Series A investment.
Equity: Typical startup equity at the Series A stage lands between 15%-30%.
Valuations: Series A valuation for startups in 2024 floats between $10M and $45.5M.
Runway: Series A money should last startups 12-20 months on average.
Average Series A funding amount: Typical Series A funding peaked for the first time in 2022, then stagnated for a year only to reach its new heights in January 2024, composing a whooping $21.2M.
Typical Series A investors:
- VC firms
- Previous investors who re-finance their portfolio companies with the biggest potential
How to raise Series A funding
Obviously, the requirements for this stage rely heavily on the startup’s business model and industry benchmarks. But there’s a general set of key milestones startups must hit to qualify for this round and stand a chance:
- Strong signals of product-market fit specific to your industry and business model
- Steadily growing customer/user base month-over-month (MoM) or quarter-over-quarter (QoQ)
- Consistent revenue growth and demonstrable ability to monetize your product
- Strong unit economics and capital efficiency
- Valuable partnerships
- Exit strategy
Related read: How to prove to investors your product-market fit
Series B funding
Raising Series B funding, in most cases, is a sign of major success and potential to become a serious market player for a company, as around 35% of companies fail after raising Series A.
This stage is marked by a higher startup’s maturity and strong market presence, with the operations and the revenue machine gearing up rapidly. Raising Series B is meant to help such a startup:
- Dominate the market, fend off the competition, and establish itself as a category leader
- Expand globally, enter new markets, and reach new regions and countries
- Amp up revenue generation and move closer to/achieve profitability by expanding customer base, adjusting business model, or moving upmarket
- Enhance the product to maintain a competitive advantage
- Scale operations and expand the team
Equity: Typical startup equity at Series B that they give to investors 10%-25%.
Valuations: In 2024, the average Series B valuation for startups in 2024 lands somewhere between $50M and $105M, with the peak Series B valuation hitting $160M in 2022).
Runway: Series B runway should normally last around 18 to 24 months.
Average Series B funding amount: Series B deal sizes peaked in 2021 with $46M, followed by a steep decline that hit its lowest point of $30M average in Q4 2023. The average check is slowly increasing again, with an average of $38.9M in January 2024.
How to raise Series B funding
The key Series B milestones, again, vary based on the startup’s industry benchmarks, business model, and market conditions. But as a rule of thumb, here is what investors expect at this stage:
- Strong revenue growth: For SaaS startups, a common target is to have Annual Recurring Revenue (ARR) in the range of $2 million to $10+ million; others must demonstrate consistent year-over-year revenue growth of 100% and gross margins above 50%
- Strong customer growth and retention rates, with a healthy CAC to CLV ratio of 1:3 and a low churn rate
- Achieving a significant market penetration rate, brand recognition
- High sales and marketing efficiency with a good Customer Acquisition Cost (CAC) payback period and Customer Acquisition Efficiency Ratio (CAER)
- A mature, feature-rich product (for SaaSs); hitting critical product development milestones and obtaining regulatory approvals or patents (for hardware or medtech)
- Expansion into new markets or regions, with provable ability to replicate success
- Strong strategic partnerships that open new growth opportunities
- Exit strategy
- Key metrics to assess your sales&marketing efficiency
- Leading & lagging metrics for startups to track
Series C funding
Series C funding is the third significant early-stage startup funding round. It’s a turning point for most startups, meant to help them fuel expansion and set the stage for potential exit strategies. It’s also not uncommon for startups to leapfrog from raising Series C funding to IPO.
Startups at this stage have already proven their market viability and ability to generate serious revenues—or even profits. The idea is working; the risks are decreasing—it’s time to take the company to the next level.
Like Series B, the Series C investment focuses on helping a company reach market dominance and expansion by entering new markets, expanding the product’s use cases, or releasing new products to take up a bigger chunk of the TAM.
As with other stages, your investors from previous rounds may also participate in the fundraiser. But given the substantial check size, they won’t lead the round, only contributing a chunk of the needed cash. The rest of the money will be raised from the new investors.
Equity: A typical percentage of Series C startup equity given to investors lands around.
Valuations: The average 2024 Series C valuation for companies starts from $100M and can reach up to $250M.
Runway: Ideally, Series C financing should last a company a minimum of 18 to 24 months or longer.
Average Series C funding amount: Since peaking in 2021 with a whopping $82M, Series C checks have been declining, hitting their lowest point in January 2024 with a mere average of $37.4M.
How to raise Series C funding
This stage is characterized by generally easier fundraising, as the company’s success usually speaks for itself, having new investors reaching out to the founders and not the other way around. Yet, your fundamentals must still be sharp and demonstrate a clear path to profitability, along with the attributes required to raise the Series B, but with higher revenue indicators.
Later funding stages: Series D, E, F & G funding
Later funding stages are considered extra rounds, aimed at startups that have firmly established themselves and own a serious % of their addressable market but haven’t yet reached the IPO level.
With some exceptions, the need to raise extra cash later on often signals the company’s inability to turn profits and successfully exit. This begs the question: is needing Series D funding bad? Needing Series D investment and further rounds doesn’t mean you’re in trouble. The scenario will depend on a specific company, its business model, long-term strategy, and market conditions.
Here’s a comprehensive comparative table for the Series D, E, F & G startup investment stages.
Initial Public Offering (IPO): Funding from public markets
IPO, or “going public,” is rightly considered the culmination of the company’s journey. When it happens, the company issues its shares in the public market for people to buy at a price that reflects its current value.
Going public is viewed as the ultimate sign of success for a startup and its backers, who get to cash out. However, there are cases when companies choose not to go down the IPO route to maintain control or simply sell the company. Either way, just having the option to go public means a company has reached the pinnacle of success.
Fundraising doesn’t have to be a struggle
Despite the recent fundraising drought that has struck startups across all VC funding stages, Waveup has helped early-stage companies raise over $505M in 2023 alone. Check out our materials and services to assist you across your fundraising pipeline:
- Compose an effective investor targeting strategy and messaging
- Create a perfect pitch deck that will 10X investor response rate with our pitch deck consulting services — or simply read how to do this yourself in our articles on Pitch Deck. Good luck!
How many rounds of funding before the IPO are there?
Typically, startups go through several funding rounds before an IPO – Pre-Seed, Seed, Series A, B, C, and sometimes D or E. But the exact number depends on the startup’s growth rate, business model, industry, and capital needs.
Lead investor vs. follow investor: What’s the difference?
A lead investor typically spearheads a funding round, sets the terms, and invests a significant portion of the capital. Follow investors to join the round under these terms and write smaller checks.
How much do founders make in an acquisition?
Founders’ earnings from an acquisition depend on their equity share and the acquisition price. This price is widely, influenced by the company’s valuation, negotiated terms, and previous equity dilution from funding rounds.
How much equity to give away in a seed round?
In a seed round, founders typically give away 10-30% of their equity, with the exact number depending on the startup’s valuation, check size, market conditions, and negotiation dynamics.
How long does Series B funding last?
Series B funding must normally last 18-24 months, depending on the startup’s burn rate.
How to value a startup for seed funding?
Valuing an early-stage startup involves assessing the team’s quality, market size, product potential, and early traction. Financial metrics don’t matter as much, as the focus is on future growth potential and qualitative factors.
What’s the difference between pre-seed vs. seed funding?
Pre-seed is the earliest and the smallest funding round that helps founders take their very first steps: assemble the team, validate the demand, and potentially create an MVP or prototype. Seed funding is the next, larger funding stage, where you develop a proper product, search for product-market fit, and validate your business model.
What’s the difference between Series A vs. Series B?
Series A funding is where you start to solidify your startup’s market presence. You’ve got some sales, and it’s time to optimize your product and grow your customer base. Series B takes it up a notch – you’ve made your mark in the market, and now you’re looking to expand aggressively. This could mean scaling operations, exploring new markets, or increasing market share. The investments and valuations in Series B are higher, reflecting greater growth ambitions.
What’s the difference between Series C vs. Series D?
Series C funding is for established companies aiming to diversify or scale aggressively – launching new products, and entering new markets or geographies. Series D is more of a strategic round, typically pursued by companies nearing an IPO, planning to acquire other companies, and overcoming particular hurdles before going public.