How to Navigate Pre-Seed, Seed, and Series A, B, and C Funding Rounds

Pre-Seed: Start with the fundamentals

Let’s begin this journey in the pre-seed stage. Startup teams can use bootstrapping to raise enough money to flush out an idea and develop a business plan, but those funds burn away quickly when you start product development for proof of concept. This is the stage where conversations about debt and equity financing first occur. 

Choosing the right business structure is critical for the acquisition of pre-seed funding. C-corps are the most flexible for fundraising. Once established, you can offer equity to new investors in exchange for the funds you need for operations. Establish the corporation, register with the state, and create a cap table to determine how many shares of stock to issue.

This is where it gets tricky. A pre-seed round could attract angel investors, friends, family, or other entrepreneurs who want to partner with you. It won’t appeal to venture capitalists or investment banks because you don’t have a product or revenue. That means your target amount will be low, so give away as little equity as possible. 

Debt financing might be an option, but the bank will want personal guarantees. You could also use SAFE notes to offer potential investors a future equity stake. Tread cautiously if you choose that route because notes typically convert when you do the next funding round and may create a valuation cap, limiting your future fundraising options. 

Next steps after a pre-seed round

Pre-seed money provides an opportunity to turn your business idea into revenue. Your team should have a detailed plan on how to accomplish that. If you haven’t done so yet, establish a bookkeeping and accounting system to keep track of expenses. Build a strong foundation that won’t crack when you grow and scale your company.      

Seed funding: Leveraging your MVP

Developing a minimum viable product (MVP) is the milestone that signals it might be time for a seed round. This is the first round of “formal” fundraising for a startup, so you can expect to get some interest from venture capital firms. It’s also a good round to do crowdfunding because you now have something worth investing in. There are several platforms you can use for that. 

Make sure your MVP is a product market fit for your target market. Taking money in a seed round before you solve that problem is almost always fatal. You’ll also want to hire a good attorney and buy E&O insurance to protect the personal assets of your directors and officers. First-time founders who miss this step could pay dearly for it later. 

Target amounts in a seed funding round range from a few hundred thousand to several million, depending on the value of your MVP and the buying power of your potential customer base. The funds are typically used for product development, team building, and market research. You can also use them to rent your first office space. Incubators or shared spaces are a good option. 

The types of investors involved in seed rounds will do their due diligence on your company. You should have no problem with that if you built a solid foundation after the pre-seed investment round. Get your books in order before you begin raising capital so you can show them a track record of success. This is where you find early-stage partnerships you can cultivate.

Next steps after a seed round       

Your first step after a seed round is to calculate the book value of your company. This number will be your starting valuation as you enter the next phase of your business. It sets the share price as one of the baseline metrics to measure growth and profitability as you break into new markets. In simpler terms, this round of funding shows your company’s maturity. 

Series A: Preferred Stock Offerings

Your company should meet certain criteria before launching a Series A funding round. To begin with, cash flow should be positive. Bill pay and expense tracking systems should be in place. Your products should generate revenue and your valuation should be significantly higher than at the end of your seed round. These are all outward signs of growth.

Series A funding is typically used to scale operations. This is the first round where private equity firms and venture capitalists show legitimate interest. It’s also where you’ll start offering preferred stock with liquidation preferences to new investors. This helps slow the dilution of your common stock and preserves the voting powers of your existing shareholders. 

The target amount for a Series A round could be tens of millions of dollars, so you’ll be playing in a very different sandbox. Investors aren’t just looking for “good ideas.” They want solid companies with established infrastructure and a solid marketing plan. Your pitch deck should show how your company will use the funds to scale current operations. 

You’ll need a pre-money valuation going into the round and a post-money valuation for when it’s complete. To avoid mistakes, hire a professional financial analyst to review your cap table and an attorney to handle the paperwork. The DIY approach you can get away with in pre-seed and seed rounds will not fly when you get to this level. Let the experts handle it. 

Next steps after a Series A round

Roughly one in five companies make it to a Series A round, so you’ve already hit a milestone most entrepreneurs never reach. Your next step is the scale the systems and processes that got you here. That could mean hiring more people, expanding your existing operations, or launching new products. If you plan to do a Series B, this is the time to increase profitability. 

Series B: Expanding your market reach

This is your fourth round of fundraising. If you used the Series A funds correctly, your company is now past the development stage and producing significant revenue. Series B money can take that to the next level by expanding your market reach. Your pitch deck should outline how you expect to do that and provide data on the customer demand for your products. 

In 2024, the median valuation for a company doing a Series B round was $35 million. That’s early adulthood if you phrase it in human terms. Raising additional money will help you reach full maturity. Other rounds may follow this, but a Series B is where startups become established businesses. You want Investors to see it that way.

Expect to see some new investors in this round. Some venture capital firms specialize in late-stage investing. Others won’t tackle a meeting if your valuation is below $30 million. To accomplish that, clear any outstanding SAFE notes and exercise options so the valuation cap is unrestricted. You’ll need a financial expert and legal advisor to get through that.

Watch your cap table closely. Equity financing dilutes existing share values. Your big investors from previous rounds won’t be happy if their ownership stake is reduced. One way to avoid that is to ask them to double down. Another is to buy them out before the round starts. Some companies also do employee buybacks before a Series B round.                    

Next steps after a Series B round

Local companies go national and national companies expand internationally after acquiring Series B funding. It provides an opportunity to expand your marketing reach. That could also mean breaking into a different niche market or launching a new product line. Your objective is to use the systems and processes you’ve developed to grow and scale your operations.  

Series C: Preparing for an IPO

A Series C round is often the last step before launching an initial public offering (IPO). Investors at this funding stage are looking for significant returns. This group includes venture capitalists, hedge funds, and private equity firms who view themselves as partners rather than simple shareholders. Keep that up front when negotiating for Series C funding.

Companies that reach this stage typically have multiple revenue streams and a national or global presence in their industry. The target amounts should be significantly more than the last round because the stakes are higher. Your pitch is to make believers out of new investors capable of putting up tens or hundreds of millions of dollars.

Series C funding can be used to expand operations, hire new people, or acquire other companies that complement your efforts. A good example is purchasing the manufacturing company that makes your materials and supplies. Another is buying out one of your competitors to give your company a larger market share in your industry. 

Be cautious about ownership stakes. Bigger players sometimes try to take companies over in a Series C round. To prevent that, your primary ownership group should maintain a majority interest. Speak with a financial professional about the best ways to do that, especially if you offer common stock with voting power in exchange for funding. 

Next steps after a Series C round   

Ownership groups usually know where the company is going after a Series C round. Increased profits are an obvious goal. Preparing for an initial public offering or acquisition is another. To prepare for that, set up a 409A valuation to assess your company’s fair market value. The SEC doesn’t require it, but potential investors may want to see it when you launch your IPO.     

Series D and E: The optional rounds 

Some companies choose to do additional fundraising rounds before going public. Series D funding can bring in extra funding before the company goes public or for specific projects, like buying another building. Series E finding falls in the same category. These rounds aren’t typically necessary, nor are they common. Less than 5% of startups reach this stage.

The average time between fundraising rounds is roughly eighteen months. That means your company has been open for three to five years by the time you get to Series D. Evaluate that carefully by looking at expenses and cash flow management before giving away additional equity. Debt financing could also be an option if you need funds.  

Wrap up

Every company is different, so we’ve tried to keep this guide as general as possible. Pre-seed funding is basic. Companies need it just to get started. Seed funding typically comes in handy for developing your minimum viable product into something that generates revenue. That brings you to Series A, where you offer preferred stock to key investors.

Series B and Series C are where a fledgling project becomes a real business. They’re about growth, scale, expanding your market reach, and preparing for an IPO. You can do a Series D or Series E round if you want to, but it’s best to look at your internal financials first. Debt financing or streamlining your operations might be better options. 

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