Startup funding can provide additional capital with stages starting from pre-seed, seed, series A, series B, series C, and IPO.
Heaptalk, Jakarta — Many startup companies announced layoff decisions in 2022, spanning Shipper, Glints, Sirclo, Xendit, GoTo, and Ruangguru. The companies decided to take the rightsizing option to achieve operational cost efficiencies, as capital began to dry up.
Some say that layoffs are common as part of the business cycle. Others say that the phenomenon of layoffs at startups is also caused by external factors that affect the cost of capital around the market.
To survive and grow, startups can take several means to obtain additional capital. The following are six stages of funding that startups commonly take to secure funding, ranging from pre-seed to initial public offering (IPO).
Pre-seed funding
A pre-seed round is the first round of institutional capital raised by a startup. This round allows the founding team to find product-market fit, hire early employees, and test go-to-market models.
This stage is often called bootstrapping as startups usually use their funds to develop their business. Funding amounts from pre-seed rounds vary from $100,000 to $5 million. Sources can come from angel investors, accelerators/incubators, and dedicated VC funds.
Seed funding
Alpha JWC Ventures estimates that around 29% of startups fail after they run out of capital during bootstrapping and lose the opportunity to go to the next stage, namely seed funding. This stage is the initial influx of capital into the business. At the seed funding stage, most startups are still ideas and generate little or no revenue. Generally, startups are still building and developing go-to-market products and strategies.
In the seed funding phase, the owners raise funds to conduct market research. This lets them know their target customers’ tastes and preferences. Afterward, startups will polish their products as attractively as possible to generate revenue. If it fails, startups are forced to stop operating as they have no more capital to run the business.
Series A funding
In the Series A funding, startups must have a product or service created and have a pool of customer base with a clear revenue stream. Funding during this stage comes from venture capital firms, angel investors, and equity crowdfunding. In this round, and in subsequent rounds, funding is usually done by one large investor, followed by other investors.
According to Visible VC, for many startups, the idea of Series A funding is intimidating but it can also be a make-or-break time for a business. Visible VC recorded that as of 2019, the average Series A funding amount is $13 million. The stage can be difficult since it also requires a Series A valuation. Concurrently, the average Series A startup valuation in 2019 could reach $22 million.
Series B funding
The series B startup funding is a business expansion stage, which does not only expand services or develop products but also involves expanding the customer base, employees, and the company’s management team. Series B funding allows the business to grow with the target of meeting the various needs of its customers and competing in the market.
Series B funding is generally less risky than Series A funding, and accordingly, there are usually more interested investors. Visible VC said that on average, Series B startups will usually get $7 to $10 million in Series B funding. Meanwhile, most Series B startups are going to be valued between $30 million to $60 million, because (again) they are proven companies.
Series C funding
In the Series C funding stage, companies will seek more investments that can help them create new products, reach new markets, and beat competitors. They might even consider acquiring other startups.
With a more stable and defined business, many investors interested in funding startups at this stage, spanning investment banks, hedge funds, and private equity firms are also joining this stage. After this, the startup will perform Series D, E, F, and so on as needed.
According to Visible VC, Series C funding amount is generally between $30 and $100 million settling on an average round of $50 million. At this point, a startup’s valuation is likely over $100M and they are on a national radar looking to expand internationally.
Initial Public Offering (IPO)
IPO or Initial Public Offering is the first time the company decides to supply company shares to the general public. This can be the last stage of the startup funding stage and helps startups develop and diversify themselves.
When deciding to go public, startups must form an external team consisting of underwriters, lawyers, certified public accountants, and capital market experts.
