The Complete Guide to Series Funding – Pre-Seed to E
An Overview of Series Funding
Raising capital is one of the most significant challenges that startups have to face. It is a lengthy and daunting process that may or may not be successful. However, if your efforts are successful, then all the tears and sweat you put in it, make your struggle worth it, as it gives you a chance to turn your dreams into reality.
Related: Explore different funding options best suited for your business by reading our guide.
Raising equity can be a sluggish process as you try to explain your business to potential equity investors to convince them to invest. A round of equity funding can take around three to four months. You should anticipate that each round of funding will take at least this much time. The actual time may vary depending on any number of factors such as the scale of the round, track record of past successes, key metrics, etc. Another important aspect of startup funding that entrepreneurs need to keep in mind is that some rounds may take even longer than usual. This can raise the risk of the company running out of money before they are able to complete any rounds of funding.
Related: Find the right investment relief, if you are a UK tax-payer, through our guide on IR, ER, SEIS or EIS
You need to bear in mind that with equity funding, as each fundraising round is completed, you will not be the sole decision owner of the company. When you fundraise for equity, new investors receive a stake in your company and its performance, in exchange for the money they invest. Despite these ordeals, countless entrepreneurs go through venture funding campaigns every year as a way to raise capital for their businesses.
Before you begin, you should read our guide to learn all the relevant fundraising terms that are essential for entrepreneurs to know if they are looking to raise funds. To further your understanding as a founder, our accountants have also outlined how each round of fundraising works and the important factors to know about.
Video: Series A, B, C, D, and E Funding: How It Works?
Watch the video to get an overview of Series A, Series B, Series C, Series D and Series E funding options, the money involved in each of the funding options and how we can help.
What is Pre-Seed Funding?
There are several stages of funding and Pre-Seed funding is the earliest. It is such an early stage that most don’t even consider it as a part of the seed funding. However, we asked our expert accounting team who believe that this is the most important seed stage as it lays out the groundwork for all the subsequent rounds of funding. During this stage, entrepreneurs often work by themselves or with a very small group of people to develop a proof-of-concept or prototype, which they use for the first round of funding. The Pre-Seed phase is often self-funded.
What is Seed Funding?
Seed funding is the process of raising funds to push startups from the idea stage to the development stage, such as product development. There are a few ways to raise capital that you might also be able to use at this stage. Furthermore, accelerators have become increasingly popular among entrepreneurs as a source of acquiring seed capital over the past few years.
Seed Funding can be a turning point for many startups. However, the initial rounds can also be the end for many others as they don’t get the desired funding to pursue their plans.
How Much Money can you Raise with Seed Funding?
How much money you raise with Seed Funding depends on a number of factors, and varies from company to company. Typically, Seed Funding startups can raise up to £2 million.
What is Series A Funding?
After a startup has gone through a Seed Funding round and developed its existing business model, it can proceed to the Series A round. At this stage, the startup should have a business development plan, even if they haven’t proven that their business model works yet. During this round, entrepreneurs should be able to show investors how they have taken their seed money and used it to increase the value of the company.
How much money can you raise with Series A Funding?
A startup can generate between £2 million to £15 million in the Series A Funding. However, to invest this much capital, investors will look for the company valuation to be at least about £10 million to £15 million.
The investment that companies receive in a Series A funding round is significantly more than the Seed Funding round because there will be more substance in the company by the time it gets to this round. Founders have to show more significant commitment and effort to acquire Series A financing.
What are the sources of Series A Funding?
The most common source of funding for Series A is Venture capital firms. However, there are many angel investors who also provide investment to startups at this stage. Equity crowdfunding is also a great option for raising funds for Series A funding and is becoming increasingly popular.
Our business accountants consider Series A round to be very crucial for startups as it gives them the biggest boost in funds to take the company from an idea to reality. However, it is prudent for founders to be aware that Series A rounds can also be a point where many startups fail as they cannot secure the funds needed. This can happen even if the company has been successful in the Seed Funding round. This phenomenon is known as a ‘Series A crunch.’
What is Series B Funding?
Startups that have successfully passed through the Series A round have substantial knowledge of their products/services and how to fulfil the market demand efficiently leading to growth and expansion.
The Series B funding round is more focused on developing the company’s customer base and business team. A startup working at the series b funding stage aims to increase its customer base significantly.
Startups need to stay competitive, vigilant and efficient during the series b funding rounds, so it’s advisable to hire or speak to a startup accountant to increase your chances of success and to present your company in the most positive way possible.
How much money can you raise with Series B Funding?
Businesses can acquire up to £7 million to £10 million in a Series B funding round. The average valuation of the company during this round is usually between £30 million to £60 million.
What are the sources of Series B funding?
The most common source of funding for Series B is Venture capital firms. However, it is common for investors from Series A rounds to inject more cash into the Series B round. Each new round of Series Funding comes with a new valuation for the company. So in order to make sure their share isn’t too diluted with the new round of funding, the same investors will often choose to reinvest in the company for Series B as well.
What is Series C Funding?
Companies that are ready for the Series C Funding round are performing extremely well. So well, in fact, that they are ready to expand their business beyond their target market into new markets. They may also be looking to develop new products or even acquire new businesses.
Companies that seek Series C funding commonly do so to expand their products globally. Some companies also solicit Series C funding to enhance their appraisal before an acquisition or launching an Initial Public Offering (IPO).
When a company has made it to Series C funding rounds, it then attracts investments from Private Equity Funds and Investment Banks. This is mainly because there is a lot less risk involved at this stage of a company’s life. These types of investors look to endow companies with huge amounts of money who are already doing well. Their investment allows them to also secure a leadership position in an already successful company.
For most companies, Series C funding is the last round of funding that they go through. This is because most companies do a Series C round as a precursor to prepare themselves for an acquisition or an IPO.
How much money can you raise with Series C Funding?
Usually, for Series C funding rounds, companies can raise up to £26 million on average. The average valuation for the company in Series C is usually between £100 million to £120 million. Some companies may be evaluated much higher depending on a number of different factors.
Remember: It’s prudent for startup owners to keep in mind that fundraising at this stage is not based on ideas and expectations but facts and figures. Investors that invest in Series C will require transparency on the number of customers you have, your revenues, your business team, the milestones you have achieved and tangibility of your company’s success.
What is Series D Funding?
Some companies require more funds and choose to acquire them through Series D rounds. Most companies end fundraising at Series C. However, there are a few reasons why other companies will proceed with this round:
- A company may decide to go for Series D round if they find a lucrative expansion opportunity or if it needs an extra push before opting for an IPO.
- Another reason the companies go for Series D funding rounds is that they might have failed in raising the expected amount of capital in the Series C round. This is also known as a ‘down round’. A down round is when the firm generates money of a lower valuation as compared to the funds raised in the prior round.
A down round depreciates the value of a company, even if the funds help the company go through a difficult time. After raising a down round, a lot of companies lose the trust of their investors as their ability to deliver on their promises seems less likely.
Related: Down rounds can dilute founder shares. Learn all about shares and share structures if you are thinking about starting a new company in our guide.
What is Series E Funding?
Only a few companies opt to go for a Series E funding round. The main reason that companies go for Series E funding is similar to why they go for funding in Series D rounds; failing to raise enough capital in the previous round, increasing the company’s valuation before going public or remaining private.
Related: Crowdfunding is another innovative fundraising method to help entrepreneurs fund their ideas for startups effectively. Learn more about different crowdfunding platforms that can help you grow your business by reading our blog.
Clear House Accountants are exceptionally competitive Accountants in London who have been helping startups at various stages of their business growth. Our startup accountants help clients throughout the fundraising process to enable positive fundraising outcomes.
Jibran Qureshi FCCA is the Managing Director of Clear House Accountants, and has over 10 years of experience in practice and across multiple industries. Jibran’s educational background includes a Master’s in Financial Strategy from Oxford University and an Executive MBA from Hult International Business School. His experience in Financial Strategy, Tax Planning, Operational Consultancy and Performance Reporting guide his cognizant approach to leading Clear House and its clients to the future. It was this dexterity that led him to be Enterprise Nation’s Top 50 Advisors.
Jibran is fueled by his passion for helping businesses. He unequivocally believes that as business advisors and accountants for our clients, it is our responsibility to work with them as business partners. As specialists, it is our duty to help our clients navigate through the complexities of constant change and the implications that come with it.
Over the past decade, innovative disruptions have changed the way businesses work, everything from cloud software, innovative business models, to AI and machine learning, have impacted how businesses operate, grow, and expand.
Jibran recognized the need to manage these disruptions sustainably, early on and shaped Clear House Accountants to not just be compliance specialists, but advisors who help build complex ecosystems around cloud accounting software, provide advice on funding support, help manage innovative tax schemes, set up and implement complex strategic plans, and much more. So, his clients can thrive, not just survive.
Jibran developed his prime role as the Managing Director to build Clear House’s capabilities so it can add value for their clients. He is of firm belief that this can be done through consistent high-level training, building the right tools, and creating roadmaps to help businesses cope with prospective disruptions. He envisages that every client that comes on board, is provided maximum value through onboarding, ongoing services and the right mix of tools to help them become the best in the world.