A, B, C investment rounds
Daria Iniewski | Growth Marketing Manager
25 June 2021 • 7 min read
In the last blog post, we told you about the Seed investment round and its effects on a startup. In this post, we will speak about other investment rounds.
The rounds that follow Seed Investment are in the alphabetical order Series A, B and C funding rounds.
Series A investment round
Statistics for the Series A investment round is horrifying – less than 10% of the companies that obtained Seed investment are able to proceed to the next round and acquire some additional financing.
Normally, a company is ready to obtain Series A funding when it has not only MVP and a brilliant business idea, but also a well-crafted growth strategy. Ideally, by that time a company has some sales record and some business traction. At this stage, investors will be looking for confirmation for return on the investment.
According to the US funding data, on average a startup attracts around $19.7 million in the Series A investment round. Someone who pays that much shouldn’t have any doubt about a startup’s business credibility or success potential.
Therefore, startups should be able to demonstrate what they managed to achieve with the money from the previous Seed investment rounds. As a matter of fact, before startups see some cash flowing into their bank account they often go through a daunting and time-consuming formal audit process.
Normally, it is venture capital companies, hedge funds or private equity companies that invest at this stage. Nevertheless, sometimes there are some private angel investors who can be also interested in investing.
In the US alone there were about 650 Series A deals in 2020.
Series B investment round
Companies, which are able to raise some cash in the Series B investment round can be considered truly unique by right. This year the average amount of funding raised by a company accounts for $33 million.
Even though the amount of money invested is large, the series B investment is considered way less risky than the series A due to the fact, that at this point startups have already generated some revenue and proved that their business model is functioning well. That is why in the Series B deals investors usually get a smaller share for more money in comparison to the A investment round.
The most common reason for the Series B investment round funding is simple and can be described in one word – growth.
While some companies can still add some new features or functionalities to their products, most of the companies need the money mainly for doing extensive marketing, entering new markets or hiring new talents.
Series C investment round and subsequent rounds
By the time a startup reaches Investment Round C, there is often a group of companies looking into acquiring it. At this stage companies often invest in startups only to purchase them later.
Such companies as Google or Intel are known for such transactions. It is extremely rare that a startup will deal with a private investor at this stage. Most likely, the biggest venture capital companies, private equity firms or banks will provide the money.
Despite the fact that on average companies raise around 59 million and some businesses are able to raise up to $1 billion at this stage, the investment in Series C is considered even less risky than in Series B and A.
On the bright side, investors can boast really decent chances to at least double their profit in comparison with the previous rounds. A startup that managed to make it that far has really solid odds to succeed big time.
Most of the companies finish their external financing at the Series C investment round. The money that they were able to raise in the previous rounds allows them to generate profit without splitting equity.
Many companies at this stage also consider Initial Public Offering (IPO).
There are always a few companies, that proceed with subsequent D or E investment rounds. However, it gets increasingly difficult to obtain money at this stage as the fact that a company participates in these rounds often signifies that a company failed to achieve the KPIs and goals it set in the previous rounds. And this, indeed, is a negative sign.
If you have some doubts regarding possible ways to grow your startup, we in Winalife, will be happy to help. We possess knowledge and experience in building and growing startups and therefore will be extremely happy to give you a hand.
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