What are investment stages?

- When businesses start receiving investment, you see a lot of letters of the alphabet getting thrown around. You'll see headlines like "This company raised a Series A," or "This company raised a Series B," but what do those letters actually mean? Well, part of it, as you may have already guessed, is intuitive. Series B comes after Series A, and Series C comes after Series B. But let's start at the beginning. Companies receive funding in rounds, because at each stage of raising capital, that money is being invested at a certain valuation of the company. Getting investors to agree to a valuation for your company is difficult as it is, so instead of trying to constantly raise funds and come up with new valuations, entrepreneurs raise capital in rounds, so they can take on a whole pool of capital from several investors at once under the same deal terms. The very first funding a company uses to get off the ground is referred to as pre-seed funding. This is the money that likely comes from friends, family, pitch competitions, and so on. It's not a lot of money, typically in the thousands or tens of thousands of dollars, and it's not always brought in through a formal round. It's just enough to get the company formalized and beginning to work on the actual idea. Next comes seed funding. The seed round is where angel and venture investors start to get involved. Seed rounds can range from $10,000 from a competition or accelerator, all the way up to a couple million dollars. The idea of a seed round is to give your idea enough money to take root. Typically, companies in a seed round need resources to develop the initial product and find initial customers. According to CB Insights, about 48% of seed companies continue to what is known as a Series A round. Series A companies typically have proven market demand for their product and have found a business model that shows promise. Companies typically raise two to $15 million at the Series A and are valued up to $15 million. Investors at a Series A are typically venture capital or private equity and aren't interested in just great ideas, but a company that looks destined for making money. So to raise a Series A, you'll need to show some real traction with customers or users. At a Series B, a company is in a build phase. Series B funding typically comes along with growing market demand and the need to staff up quickly to be able to serve that demand. Companies typically raise between seven and $10 million at Series B, with valuations between 30 and $60 million. At this point, a company has a proven business model and strong performance. In order to grow, they need to hire more staff to support that growth. These stages continue on with a new letter for each. Some companies raise a Series C with valuations in the hundreds of millions. At some point, though, around Series C, most companies either reach self-sustainability or they crumble. Not many companies raise money past Series C, and you shouldn't really want to. The stages I've laid out here are approximations. There are no hard and fast rules here. Sometimes a company may skip pre-seed and seed funding and go immediately to Series A. I've seen some companies raise Series C funding without having true product market fit yet. All investors are different, but generally speaking, if you're looking to raise real venture capital, you'll need to show them a functioning business and not just an idea on a napkin.