In many circumstances, businesses require an influx of cash to be able to grow rapidly. Unfortunately, most founders and entrepreneurs do not have the means to fund this growth themselves. While there are several outside funding options available, one of the most popular is to seek out and bring on investors. There are different methods of doing this but, one of the more established routes is going through a globally recognized series of funding rounds. Every company is unique and will advance through rounds at their own pace dependent upon their current state and future objectives.

Prior to launching, when a company is working through their idea or concept, they will enter the pre-seed funding round. During this stage they seek to raise funds to finalize and develop their concept or product. At this very early stage a business has usually not generated any revenue. The main purpose of funding at this stage is to create an MVP (minimum viable product) and build a lean start-up team. This stage is often aptly referred to as the “friends and family” round and consists of founders and partners reaching out to personal contacts and acquaintances. Professional investors tend not to get involved at this stage unless they personally know the founders, or the founders have a track record of successful prior ventures.

Once a company has developed their first product or clearly defined their service, they will move into the first formal funding round. Funds acquired during this stage are used to fund the team and to determine a product-market fit. In other words, these funds allow the product to be tried across several different marketing channels to determine and attract the target market.

The purpose of the seed stage is to take a final product/service and begin creating the foundation of the business. Often, many of the funders from the first round will contribute again but, in addition, angel investors are typically approached. Angel investors take on a great deal of risk by getting involved with companies at such an early stage but, they mitigate this risk by funding several companies, usually in exchange for preferred equity ownership, in the hopes that a fraction of their investments will generate big rewards. Angel investors tend to be individuals with a high net worth that have the available funds to take such a risk.

Depending on the company, some may never move beyond the seed stage. However, companies that desire or require addition funding to stabilize cash flow and grow, will enter more formal funding series rounds. Series funding rounds begin with series A and move through the alphabet (A, B, C, etc.). It is not always the case but, typically at this stage the business concept is proven to be viable and the product-market fit has been established.

Series A funding is most frequently used to grow the customer base through marketing and advertising spend and continuing to build the team. It is at this stage a formal business plan with a defined business model and solid long-term plans will be expected. In addition to the investors from prior rounds, venture capitalists will likely be approached and get involved at this point. Venture capitalists are individuals or firms who look to invest in companies that have a proven concept and are believed to have the ability for rapid growth and hearty margins. Although investments at this stage are less risky given the product and business have been proven, the investment amount tends to be larger.

Series A funding should allow a company to optimize their team and operations as well as continue to demonstrate and grow demand for the services. If they have been successful at this and believe additional funding will allow them to move to further building and growth, they will move on to Series B funding. The primary goal of this stage is broadening their market reach through increased production and growing further demand.

Venture capitalists again are the primary target of Series B funding however, the funding amounts tend to continue to rise. Some of the same venture capitalists may contribute but, it is possible that additional ones who specifically look to fund larger, more proven, and therefor later stage funding rounds will likely come on board.

These are just the earliest outside investor funding rounds; they can continue through Series E. On paper, these funding rounds may seem straight-forward. However, it can be challenging to determine the perfect timing to approach investors for the next round. That’s where Smirnova Business Consulting’s expertise comes into play. We help our clients understand their funding and growth options, including working through series investor funding and determining not only the best time but, how to approach new investors. Further, we offer appealing pitch decks and thorough, expert business plans.